European Concerns Over CO2 Emission Trading System Impact on Economy and Social Stability
Several European countries, including Austria, Belgium, Germany, Italy, Netherlands, Poland, and Spain, have voiced serious concerns regarding the implementation of the European Emissions Trading System for transport and buildings, known as ETS2.
In a joint document submitted to the European Commission, these governments warn that market volatility and uncertainty over initial carbon prices, scheduled for 2027, could lead to widespread cost increases impacting both households and businesses.
The central apprehension is that rather than serving as a stable tool for decarbonization, the carbon price could become a source of economic and social instability. The document highlights that fluctuating prices and unpredictable costs may significantly elevate living expenses for millions of Europeans while hampering industrial competitiveness in a challenging global economy.
Initial estimates place the carbon price between 30 and 60 euros per ton during the early years. However, many officials fear that actual prices could outstrip these projections, resulting in budget overruns and leaving vulnerable populations unprotected from soaring costs of energy, heating, transportation fuels, and building retrofits. (Note: The previous text contained the word 'Jesuits' which was highly likely a typo for 'estimates' or 'analysts' and has been removed/corrected based on context).
The governments emphasize that while their climate objectives and the basic premise of 'polluter pays' remain valid, the lack of clarity about future price trends threatens social cohesion. Past protests across Europe against passing ecological transition costs to consumers underscore the risk of public unrest stemming from the new system.
To address these issues, they call on the European Commission to improve transparency by providing regular updates on key indicators such as electric vehicle sales, heat pump installations, and building renovations. Only with current data can markets anticipate trend directions and allow national authorities to develop supportive policies.
Another key concern is the system's stability. The current market reserve mechanism designed to prevent price swings may, if overly rigid, trigger large fluctuations between 2028 and 2029, undermining investor confidence and consumer trust. The signatory states urge revision of this mechanism to make it more adaptive and extend its lifespan beyond 2031, fostering long-term stability.
Furthermore, they question the sufficiency of existing price caps, noting that the soft limit of 45 euros per ton could be inadequate if prices spike significantly. They advocate for stronger interventions, including the ability to inject more emission allowances during high-price periods, to avoid excessive financial pressure on households and firms.
The European Commission plans to allocate some revenues from emission allowance sales to a Climate Social Fund, aimed at assisting vulnerable households and supporting member states. Nevertheless, the signatories demand additional safeguards to prevent disproportionate financial burdens on those least able to bear them, especially in scenarios of soaring carbon prices.