In the weeks when we mostly talk about the reasons that caused it the increase in the price of energy in Europe, one of the acronyms that pop up most often is ETS. Stands for Emission Trading Scheme, “Emissions trading system”, has been in force since 1995 and is one of the main measures implemented by the European Union to encourage the transition to more sustainable energy sources. But lately it is also much criticized by some countries, because accused of being among the factors contributing to the increase in energy prices, which are forcing various governments of the European Union – including the Italian one – to emergency solutions.
The ETS was designed in the 1990s to try to put a limit on the carbon dioxide emissions that European companies and power plants emit each year (and which account for around 41% of the Union’s total emissions).
It works like a market in all respects: every year each European company responsible for polluting emissions receives a quantity of “credits” for each ton of carbon dioxide that according to complicated calculations by the European Commission it can emit. The company can then decide to spend those credits to emit carbon dioxide, or choose to pollute less – and therefore make investments to be increasingly sustainable – and sell part of its shares to a less virtuous company.
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In this way, ideally, the European Union should be able to keep polluting emissions under control and incentivize companies to use more sustainable energy sources, without imposing stringent limits from one day to the next. The ETS system has great admirers almost everywhere, regardless of who would like it even more ambitious or more gradual: according to data from the European Commission in the last 16 years it has reduced the polluting emissions of the companies involved in the system by 42.8 per cent.
Furthermore, to make European companies less and less polluting, the European Union annually reduces the overall quotas granted to companies, in a percentage linked to the amount of carbon dioxide that must be avoided to produce in line with European objectives. Until a few months ago, the European Union’s commitment was to reduce net emissions by 40 percent compared to 1990 levels, by 2030. In the period between 2013 and 2020, in line with these objectives, it was an annual reduction of the available quotas of 1.74 per cent is envisaged.
What does it have to do with the recent price hike
Some observers believe that the recent rise in energy prices is partly due to the ETS because in 2021 we have entered a new phase of the system, which provides for an annual reduction of the available quotas of 2.2 per cent. From this year, therefore, fewer quotas are available than those made available between 2013 and 2020. In January they cost about thirty euros each, while in 2020 they cost an average of twenty euros.
According to some, the limited availability of quotas – which are also bought and used by energy producers – has also pushed the cost of energy further up: due to the scarcity of natural gasin fact, many European countries are producing energy by resorting to other fossil fuels, which however require the purchase of a higher number of quotas.
In turn, higher demand than a static offer – the number of allowances set for 2021 has not been increased – has further pushed the prices of allowances. In September they exceeded 60 euros, points out the Financial Times.
Because we will hear more and more about it
Due to the ambitious goals set by the Green Deal of the European Commission, whose Climate Law – approved in summer – plans to reduce the net emissions produced by the European Union to zero by 2050, with an intermediate target to 2030 of a reduction of 55 per cent.
Given that the new target is more ambitious than the 40% in force until a few months ago, the Commission is faced with the complex objective of updating all the measures already in place to adapt them to the new target. To do this a few weeks ago he presented a package of measures called Fit For 55, which will now have to be discussed by the European Parliament and the Council of the EU, the body in which the representatives of the governments of the 27 member countries sit.
While the old target of 40 per cent reduction in net emissions by 2030 was for an overall reduction in ETS allowances of 43 per cent by 2030, the Fit For 55 package predicts that within the same year should be reduced by 61 percent. As a result, once discussed and approved, the Fit For 55 will reduce the odds available to businesses at an even faster rate.
The Fit For 55 also provides for the introduction of a second system, called ETS II, which will apply to road haulage and construction companies, responsible respectively 22 and 35 percent of the polluting emissions of the European Union.
What the states think
The acceleration of the ETS and the introduction of the ETS II have been criticized above all by the countries which are the most backward in terms of ecological transition, whose companies may decide to pass the increases on to consumers; in fact, widening the gap with the more advanced countries, that is, those of the North, where sensitivity to the climate is more widespread.
Countries such as Germany, the Netherlands, Sweden and Finland are demanding greater severity from those that pollute the most today, and hope that rising prices will not make EU proposals more timid. The Commissioner for Energy, the Estonian Kadri Simson, he said that the main reasons for the increase in energy “do not come from Europe” and that in any case the measures proposed by the Commission “include medium-long term solutions”.
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