Climate Policy: Embracing Europe

The agreement recently presented by Germany’s new three-way coalition government of Social Democrats, Greens and liberals puts climate policy at the top of the agenda. However, what this transformation will essentially look like is being negotiated in Brussels as part of the “Fit for 55” programme and not in Berlin. The measures agreed in Brussels will have a direct impact on climate policy in Germany.

In December 2019, Ursula von der Leyen announced the goal of becoming climate neutral by 2050 as part of the European Green Deal. In July of this year, the European Commission presented the comprehensive “Fit for 55” package, which aims to set the EU on the ambitious path to a greenhouse gas emissions reduction of at least 55 per cent by 2030.

An essential element for success is the creation of a second emissions trading system for the transport and buildings sectors, or rather for the fossil fuels used there, i.e. petrol, diesel, heating oil and gas for heating. Each fuel, oil or gas supplier would then have to purchase certificates in proportion to the amount of fuel supplied, corresponding to the CO2 emissions released by the combustion of the fuel. Together with the planned expansion of the already existing emissions certificate trading for energy and industry, about 80 per cent of the emissions in Europe would then be subject to carbon pricing. Since the number of certificates is to be based on the EU’s reduction target, its achievement would be largely ensured.

This requires a joint European effort. Currently, the price for an emissions certificate in the energy and industry sectors is around 60 euros per tonne of CO2. According to a ZEW simulation of the European Commission’s proposal, the price in the transport and buildings sectors could rise to over 300 euros if the reductions are distributed as currently planned. To put this in perspective, the price of petrol would then rise by about 85 cents per litre. The study also shows that a more efficient distribution of the reductions among the sectors, namely more reductions in energy and industry and less in the “more expensive” sector of transport and heat, would distribute costs more evenly and thus lead to total cost savings of up to one per cent of GDP annually.

The question of how many emissions should be reduced in which sectors, and even more fundamentally whether there will be a second emissions trading system at all, is currently being negotiated at the European level. Some countries like France and Poland are not yet convinced. Among other things, they fear that higher petrol prices could lead to social upheaval. The planned European Social Fund, which aims to redistribute the revenues from the new emissions trading system to those in particular need, therefore has an important function. It is to be welcomed that the three coalition parties support the creation of a separate European emissions trading system in their agreement. Germany has already introduced a second national emissions trading system for the transport and buildings sectors. A Europe-wide expansion of this system would increase efficiency across borders – emissions would then be reduced throughout Europe where it is cheapest.

However, a consistent European climate policy also has important consequences for national climate protection plans. Since the two emissions trading systems would largely guarantee the European reduction target – with the exception of agriculture – the achievement of national targets would become secondary. If one country reduces more emissions, another will reduce less – if one country needs fewer certificates, others will have more available. National sectoral targets lose even more importance: although they can serve as orientation, they force politics and companies into a narrow and thus expensive system and have no real (European) climate impact if they are pursued too rigidly. In this respect, it is to be welcomed that the three coalition parties have agreed to dispense with an annual sanction-based control of the sectoral targets.

If the European climate measures are successfully implemented, the hierarchy of political decision-making in climate policy will shift: Europe will then be responsible for achieving the European climate targets with the two emissions trading systems. Germany must ensure that achieving the European emissions target is also socially and technically feasible. Measures accompanying the transformation, such as support programmes in lignite regions and, above all, the expansion of energy infrastructures, e.g. the electricity grid and charging infrastructure, will be in focus. The faster grid expansion stipulated in the new coalition agreement, the goal of establishing one million public charging stations by 2030 and the acceleration of planning and approval procedures for renewable energies are essential for this. A meticulous pursuit of national emissions targets, on the other hand, is less important.