The European Commission’s ‘Fit for 55’ package of proposals would extend EU-wide carbon pricing from around 22 percent of EU greenhouse gas emissions today to over two thirds of EU emissions by 2030, according to an initial analysis by the Institute for European Environmental Policy (IEEP).
This three-fold extension comprises the phase-out of free allocation in the EU Emissions Trading Scheme (ETS), the extension of the ETS to the maritime, road transport and buildings sectors, and the revision of the Energy Taxation Directive (ETD), including the ending of energy tax exemptions for aviation and maritime.
Despite the significant increase, several energy-intensive industrial sectors will continue to benefit from free allocation of allowances under the ETS for many years to come, with these only set to be gradually phased-out from 2026-2036 as the Carbon Border Adjustment Mechanism (CBAM) is phased-in. Ending free allowances for all sectors by 2030 instead would extend a carbon price signal to around 75 percent of EU emissions.
According to IEEP’s analysis, the proposals mean that carbon pricing revenues in the EU could total over €100bn per year by 2030, compared to €14bn in 2019. This includes the new proposal for a Climate Social Fund, which should amount to approximately €10bn per year from 2025-32, amounting to over €100 per capita if directed to the poorest fifth of the EU population. While carbon pricing can have socially regressive impacts, if these revenues are used well, the overall impact of carbon pricing can be progressive – leading to overall benefits for lower income households.
IEEP (Institute for European Environmental Policy)
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