Emissions permits E.U. Slashes Licenses to Pollute

E.U. countries and the European Parliament have struck a deal that will see the number of CO2 pollution permits bought and sold on the Emissions Trading System greatly reduced.
Germany's coal-fired power stations are suffering under the Emissions Trading System.

The Greens are calling it a "minimal cosmetic measure" with no significant impact. Others see Wednesday’s agreement on a reform of the European Emissions Trading System – which allows companies to buy and sell carbon emission allowances - as a good day for climate protection and the economy.

The new rules will spur investment and create jobs, said Matthias Groote, the environmental policy spokesman for a left-leaning parliamentary group in the European Parliament.

E.U. member states and the European Parliament agreed a compromise after a lengthy dispute over reforms to the emissions trading system. Under the compromise, the supply of industrial pollution permits in the European Union will be reduced by 200 million a year starting in 2019, with each permit worth one metric ton of CO2.

This is earlier than proposed by the European Commission, the E.U.’s executive arm, which had favored 2021. In addition, about 900 million permits will be removed from the market in the long term. A market stability reserve will allow pollution permits to be either withdrawn from or added to the market in the future, depending on economic conditions.

The new tightening of permit rights is intended to push up prices and make investments in climate-friendly technology more attractive.

Emissions trading is the centerpiece of E.U. climate protection legislation. It obligates industry and the energy sector to acquire and be able to present pollution permits for each ton of CO2 they emit.

However, the price of permits has declined sharply in recent years, due to an oversupply of the tradable certificates and weak economic development in Europe.

Environmentalists are critical of the system, arguing that it makes investments in emissions filter systems or power conservation technology hardly worthwhile. The new tightening of permit rights is intended to push up prices and make investments in climate-friendly technology more attractive.

The year in which the new rules are to take effect was a particularly contentious issue during the negotiations. Germany was in favor of 2017, while Poland, concerned about high additional costs for industry, was pushing for 2021, hence the compromise on 2019.

German Environment Minister Barbara Hendricks, of the center-left Social Democratic Party, the junior partner in Germany’s coalition, welcomed the compromise. But she noted that additional national measures would be necessary to achieve the German government's climate objectives, "especially in the energy supply sector."

Her remarks were aimed at the debate over the contribution to climate change by coal-fired power stations. They are being ordered to reduce emissions and phase out highly polluting plants, leading to concerns over jobs and economic viability.

There are also problems in the transport sector, which is expected to achieve a 10-percent reduction in emissions by 2020, compared to 2005 levels.

This goal is "clearly not being met," according to an as yet unpublished study by PwC, a consulting firm. It concludes that emissions are now even higher than in 2005, despite lower fuel consumption in modern vehicles.

The authors of the study are also skeptical that the government will reach its goal of having a million electric vehicles on German roads by 2020, which they argue would require more government subsidies. They also recommend that the government pay more attention to fuel consumption in trucks.

The Center for European Policy in the southwestern German city of Freiburg wants to see the entire transport sector included in emissions trading, not just aviation. "This expansion would increase the system's economic efficiency," according to a CEP report.

Increasing the number of participants will make it easier to reduce emissions where conditions are the most favorable, but this will be counteracted if additional tools are implemented, such as CO2 limits in motor vehicles. The CEP researchers argue that petroleum producers and importers, rather than motorists, should be included in emissions trading, and that they would roll over the cost of certificates into gasoline prices.

"Their inclusion will make CO2 limits obsolete," the report reads, noting that it will be sufficient "to achieve a reduction target set by lawmakers.


Daniel Delhaes is a Handelsblatt editor focusing on transport, Silke Kersting reports on the environment and Thomas Ludwig is a Bussels correspondent. To contact the authors: [email protected], [email protected], [email protected]