EnergiseEurope: How can we make carbon pricing work for decarbonisation

By Zoe Choulika and Eleanor Batilliet, Research Executives at FleishmanHillard Brussels. 

On 22 May, FleishmanHillard Brussels held an EnergiseEurope roundtable on “How can we make carbon pricing work for decarbonisation” which addressed different options to accelerate the EU’s emission reduction efforts through carbon pricing.

Overall, members of the panel representing the EU industry, think tanks and the European Commission agreed that the EU Emission Trading System is an undeniably effective tool to decarbonise the economy.

It was however highlighted that additional tools are needed to make sure that the EU transition to a low-carbon economy is managed effectively and by all sectors. Clarity and certainty on the EU’s path to decarbonisation were focused on as a necessity for both the industry and power sector to manage the transition to a low-carbon economy.

It was also stressed that the regulatory framework must not forget to secure and protect energy-intensive industries exposed to global competition without carbon pricing, during the transition.

Some companies are currently using a “shadow carbon price” to take into account the environmental externalities of their investments. This tool is used for infrastructural investment planning as a proxy carbon price, meant to guide decision making and investments with medium and long term consequences towards more environmentally friendly resources.

While already used in the private sector, some participants encouraged this type of instrument to be used at a policy level. Additionally, to implement and direct investment in less emitting energies and sectors, some participants suggested that the EU implements a minimum carbon price in order to have certainty for their long-term investment plans.

Energy-intensive industries are very much dependent on other sectors and the rest of the world to decarbonise. Members of the panel stressed that industry needs to move towards electrification in order to cut its GHG emissions, and for that reason, it is essential that decarbonisation is fully achieved upstream by the power generation sector. Both manufacturing and the energy industry, therefore, need a clear view of the decarbonisation pathways prioritised by the European Union, in order to plan ahead.

With a business-as-usual approach, Europe would only reach 60% of its 2050 objectives, therefore participants emphasised the need for additional tools to cut emissions at a faster pace. It would, therefore, be crucial to develop tools to decarbonise overall energy consumption (the power sector only represents 25% of the total energy consumption in the EU).

As such, suggestions included extending carbon pricing to other sectors than the EU ETS sectors such as buildings, heating and transport. It was noted that the power sector has made the largest contribution to emission reduction efforts in the ETS in the past years.

However, while aligning EU energy taxation to climate objectives is a priority for the European Commission, extending carbon pricing to non-ETS sectors was found difficult due to scepticism from the Council, and any change to the competence around taxation seems unlikely due to Member State concerns about losing their veto on taxation.

Some participants argued implementing a carbon tax at the EU level is preferable for the power sector, compared to taking over 27/28 different individual approaches. Whilst recognising the political difficulty of such a measure, participants stressed that the Commission needs to ensure a fair and harmonised treatment in the way carbon is taxed and priced among various sectors because individual taxes from different member states are inconsistent.

There was an overall scepticism in the panel regarding border adjustment mechanisms, with open questions on the method of measurement of the carbon footprint of products produced outside of EU.

Finally, extending carbon pricing at the global level was emphasised as a crucial element for EU energy-intensive industries, as this would create a level playing field. If the EU’s low-carbon economy is not competitive, it cannot expect other regions to follow the same decarbonisation path.