Since 2005, the emission trading system, also called carbon market, is at the heart of the European strategy to reduce greenhouse gas emissions.
This device that covers around 45% of carbon emissions is based on the simple principle of "polluter pays".
The entities concerned, mainly the most polluting industrial sites, but also the intra-EU airlines, are given emission allowances by public authorities. These are tons of carbon which they can emit into the atmosphere every year.
When they reach the limit, they have to obtain additional rights on the markets or bilterally. This has a cost. So it is a financial incentive to adopt less polluting production methods based on renewable energies for instance.
An increasingly efficient market
Sometimes criticized for its inefficiency and also undermined by fraud, the European carbon market has had a difficult start. But let's remember that, in the early stages, it was a learning process. And important progress has been made. The system has become more transparent.
Since the rules for attribution of emission allowances have been harmonised at the European level. A stability reserve was created in 2019 to regulate the volume of carbon rights trading, then to stabilize and maintain prices.
The number of sectors covered by the device has continued to increase. The system of allocation by auction has been developing. It allows the States to generate revenues to finance energy transition.
Let's note that the fourth phase of the ETS launched in 2021 reinforces these trends. It plans to gradually remove free allowances for emissions. They will be replaced in fine by a carbon border adjustment mechanism. Maritime transport will soon be added to the list of covered sectors.
It will also be the case of road transport and construction from 2027. It will almost entirely cover the EU carbon emissions.
Reduction in emissions
At 18 year old, does the European carbon market fulfil its promises?
What's hardly questionable is that the EU, for some time now, has managed faster than others to reduce its greenhouse gas emissions. Minus 25% between 2006 and 2021. Even minus 40% for sectors covered by the system. This has been unequalled.
Another positive point: the price of a ton of carbon. Although it is still subject to unpredictability, such as the war in Ukraine or the pandemic of COVID-19, has come under better control. It has reached an all-time high, 100 euros per ton, and complies with the objective set by the European Commission.
And the forecasts made are quite stable. For companies that have initiated their energy transition, with heavy multi-year investments, it is a major support for better prospects.
To conclude, despite criticisms, the European carbon market works rather well. It proves to be an efficient tool to measure and limit the industrial greenhouse gas emissions and more recently, to settle a price.
Of course, it is only a partial answer to the issue of global warming. But it sets a precedent. In China, for instance, the exchange of rights to pollute started in 2021.
