Search Climate Insights Directory

The European steel and cement sectors face substantial surplus production capacity and limited reinvestment, hindering the adoption of low-carbon technologies. While energy efficiency and fuel-switching have provided some gains, breakthrough process technologies like carbon capture and storage (CCS) require significant public funding and a credible, long-term carbon price signal for both producers and consumers to be viable. The report argues that a comprehensive policy package—combining the EU ETS, innovation funding, and updated building standards—is essential to transition these capital-intensive industries toward sustainable, high-value production.

Carbon Market Watch argues that the EU ETS review proposal prioritizes industrial interests over climate goals by earmarking at least €160 billion in free pollution permits after 2020. While the proposal increases the linear reduction factor to 2.2% to meet 2030 targets, the organization contends this is offset by the release of surplus allowances and the continuation of free allocations to prevent hypothetical carbon leakage.

The report argues that a "carbon market only" approach is insufficient for the cost-effective decarbonisation of the European power sector. While the EU ETS is an effective tool for driving fuel switching in the residual thermal generation mix, it cannot alone drive necessary investments in low-carbon technologies due to high capital costs, revenue risks, and the 'merit order effect'. The authors recommend a policy mix where the EU ETS is complemented by tailored national investment supports—such as feed-in tariffs or contracts for difference—to reduce the cost of capital. To ensure coherence, the report proposes an ex-ante cap adjustment process for the ETS based on Member State National Energy and Climate Plans and the development of long-term decarbonisation strategies back-casted from 2050.

Carbon Market Watch responds to the EU consultation on the 2030 Effort Sharing Decision (ESD), opposing the use of EU ETS and LULUCF offsets to meet non-ETS targets. The organization argues that such flexibilities risk reducing the EU's 2030 climate ambition and delaying necessary mitigation. Instead, it proposes enhancing transparency in annual emission allocation (AEA) transfers, introducing a central auctioning system for AEAs to support lower-income Member States, and implementing a project-based intra-EU offset mechanism for transformative projects. The response emphasizes the importance of early action and calls for a comprehensive package of EU-wide policies in transport, buildings, agriculture, and waste to ensure the 2030 targets are met without compromising environmental integrity.

Carbon Market Watch argues that carbon markets should not substitute for domestic emission reductions and warns that oversupply in previous systems, such as the EU ETS and Kyoto Protocol's International Emissions Trading, has undermined their effectiveness. The organization emphasizes that the remaining carbon budget to stay below 2ºC is limited, necessitating a focus on zero/low carbon infrastructure over offsetting. It recommends that any new framework for international unit transfers must include robust eligibility rules, environmental integrity standards, and accounting rules to prevent double claiming.

Carbon Market Watch argues that international carbon markets must be supplementary to domestic action and governed by strict eligibility, accounting, and integrity rules to avoid the failures of previous mechanisms like the CDM and EU ETS. The organization recommends excluding REDD-plus and agriculture from carbon markets, implementing a 'negative list' of ineligible project types, and establishing a UN-led standard-setting body to prevent double-counting and ensure net atmospheric benefits.

The document analyzes the EU's Effort Sharing Decision (ESD), which sets emission targets for non-ETS sectors (transport, buildings, agriculture, and waste). It argues that the 2013-2020 period was characterized by weak targets and overgenerous flexibilities, leading to projected overachievement without new mitigation actions. For the 2021-2030 period, the EU aims for a 30% reduction compared to 2005. The brief warns that certain proposed flexibilities—specifically the use of EU ETS allowances and forestry offsets—could increase overall EU emissions by up to 28% by 2030. It recommends focusing on early action, implementing EU-wide mitigation policies, introducing auctioning based on the polluter-pays principle, and restricting borrowing to avoid delaying climate action.

The policy brief examines the implications of linking the EU ETS with external carbon markets, noting that while it may increase cost-efficiency, it risks undermining the EU's 2030 domestic emissions reduction target of 40%. It highlights the lack of transparency and European Parliament involvement in current negotiations and recommends that any linking be accompanied by higher emission targets and robust safeguards, such as the exclusion of international offsets.

The UK government advocates for a global market-based measure (GMBM) via ICAO to achieve carbon-neutral growth for international aviation from 2020, while supporting the EU Emissions Trading System as a regional interim measure. The UK emphasizes that responsibility for aviation and shipping emissions lies with ICAO and the IMO respectively, and supports the Single European Sky initiative to improve air navigation efficiency.

The policy brief examines the potential for linking the EU ETS with other carbon markets, specifically focusing on ongoing negotiations with Switzerland. It argues that while linking can increase cost-efficiency, it risks reducing overall emissions abatement, lowering domestic investment, and undermining the EU's target of at least 40% domestic emissions reductions by 2030. The author highlights a lack of transparency and democratic oversight in current linking procedures and recommends that any future linking be accompanied by increased EU emission targets and strict criteria regarding target stringency, the use of offsets, and price/supply controls.

The letter argues that aviation is the fastest growing transport mode and that ICAO's proposed offset mechanisms are inadequate. It calls for the EU to establish a common position, phase out tax-free fuel and VAT status, and push for legally binding emissions reduction carbon budgets for 2030 and 2050 to keep global warming below 2°C.

The author contends that the EU ETS is hindered by a massive oversupply of emission allowances, which suppresses carbon prices and risks 'green job leakage'. To rectify this, the document calls for the European Commission to implement a mechanism for the permanent cancellation of surplus and unused allowances and to move toward full auctioning of permits after 2020.

The Prince of Wales's Corporate Leaders Group and We Mean Business partners support the EU's commitment to cut greenhouse gas emissions by at least 40% by 2030 compared to 1990 levels. While praising the EU's leadership and the Energy Union framework strategy, the group calls for the Market Stability Reserve to be implemented by 2017 to remove surplus carbon permits and requests clearer guidance on financing the transition from gas to greener energy alternatives.

Carbon Market Watch argues that the EU's commitment to reduce domestic greenhouse gas emissions by at least 40% by 2030 is undermined by a lack of transparency. Specifically, the organization warns that a surplus of 4-6.5 billion emission permits could reduce effective reductions to 17%-26%, and vague accounting for land-use removals could further lower the target by up to 5%.

Carbon Market Watch asserts that the EU's plan to link the EU ETS with the Swiss carbon market necessitates an increase in the EU's domestic reduction target beyond 40%, as the current target is intended to be achieved without international credits. The organization warns that a surplus of emission allowances, estimated to reach 2.6 GtCO2 by 2020, could dilute the 2030 target by 7%. Additionally, the document highlights risks from accounting tricks involving Member State surpluses and artificial gains in forest management, which could further weaken the target by 5% each.

Carbon Market Watch criticizes the European Parliament for delaying the implementation of the Market Stability Reserve (MSR) until 2019 and for allowing 300 million surplus allowances to return to the market for an innovation fund. The organization warns that the EU ETS is currently flooded with over two billion excess permits, which suppresses carbon prices and hinders the transition to renewable energy. It urges EU Member States to establish the reserve by 2017 to prevent the oversupply from potentially reaching 4.5 billion permits by 2020.

The document warns that the EU Emissions Trading System (EU ETS) is dysfunctional due to a surplus of over 2 billion tonnes of pollution permits, which has caused carbon prices to drop from 30 euros in 2008 to approximately 7 euros. It advocates for the immediate implementation of a market stability reserve to manage this overcapacity, noting that failure to reform the market could lead to a shift toward national-level command-and-control measures and undermine global carbon trading systems and the Paris climate summit. However, it cautions that a reserve is only a temporary cushion and that a permanent cancellation of surplus permits is necessary to protect future climate targets.

The report investigates the potential for a Market Stability Reserve (MSR) to address market and regulatory failures in the EU ETS, such as limited banking capacity and regulatory myopia. Through a model comparison exercise involving twelve institutions, the authors assess different MSR designs—including the European Commission's proposal, an 'Early Start' version, and price-based mechanisms—across indicators of efficiency, price credibility, consistency, transformation, and robustness. The findings suggest that an MSR generally improves performance, with an Early Start MSR (2017) offering superior benefits over the 2021 proposal. The report emphasizes that the effectiveness of quantity-based MSRs depends heavily on setting trigger levels that accommodate the hedging needs of market participants, suggesting the use of REMIT Directive data for future adjustments.

The document asserts that aviation is the fastest growing and most carbon intensive transport mode, contributing 5% of global warming. It criticizes ICAO's current approach as inadequate, focusing on limiting growth rather than reducing emissions. The brief calls for the removal of aviation fuel tax and VAT exemptions, the implementation of binding emissions reduction budgets for 2030 and 2050, and a more proactive EU role in ensuring the environmental integrity of a Global Market-Based Mechanism (GMBM). It also suggests shifting focus toward rail infrastructure to reduce aviation dependence.

The evaluation finds that Joint Implementation (JI) likely increased global GHG emissions by approximately 600 million tCO2e because many projects lacked additionality and were hosted by countries with significant allowance surpluses. The report highlights systemic failures in auditing, particularly under Track 1, and notes that 80% of issued ERUs came from project types with low or questionable environmental integrity. It recommends international oversight, standardized methodologies, and the prohibition of retroactive crediting for future mechanisms.