In times of high energy prices, it’s even more crucial to pursue the issue on decarbonisation in heating and transport

The war in Ukraine has shown us that we need to reduce our dependency on Russian fossil fuels. To do that, we need to continue to implement the ‘Fit for 55’ package and approve the new Emissions Trading System (ETS 2) for heating and transport, argues Peter Liese
Rosneft-owned tanks | Photo: Alamy

By Peter Liese

Peter Liese (DE, EPP) is Parliament’s rapporteur on the Revision of the EU Emissions Trading Systems (ETS)

26 Apr 2022

The Russian aggression in Ukraine changes everything. All policy areas need to be re-assessed, and it is important that people do not only repeat the story that they have already been telling for years but are ready to adapt to the new situation. 

The crisis and subsequently increasing food prices, which dramatically challenge low-income countries for example in Africa, require compromises from environmental politicians. I support the idea that land which had been due to be set aside should temporarily be used to produce food. On the other hand, we must also fight food speculation and food waste and implement measures against the excessive consumption of meat. It is not helpful if agricultural politicians only insist on the first point and environmentalists only insist on the second point. 

The main consequence of the war should be that we reduce our dependency on Russian fossil fuels. Last year, we as the EU, sent €99bn to Russia to pay our energy bill. That is already almost twice as much as the Russian military budget. If the situation continues as it has since the outbreak of the war, it will be more than €200bn at the end of 2022. We need to stop this as soon as possible. 

Climate change, high energy prices and our dependency on Russia all have the same cause: our massive reliance on fossil fuels 

There are some people arguing that the Fit for 55 package, which aims for a 55 per cent greenhouse gas emission reduction by 2030, should now no longer be implemented. The opposite is true. Climate change, high energy prices and our dependency on Russia all have the same cause: our massive reliance on fossil fuels. So, while compromise needs to be made in the short term, like, for example, the temporary use of coal or nuclear power instead of Russian gas, for the long term, the solution is the Fit for 55 package, which triggers renewable energy and efficiency. On top of that, the latest United Nations Intergovernmental Panel on Climate Change (IPCC) report makes it clear that we need to act urgently in order to reduce emissions drastically. 

But is the new Emissions Trading System (ETS 2) for heating and transport proposed by the European Commission really the right thing in these times of high energy prices? My answer is yes! The new ETS will not enter into force tomorrow. We have three, maybe four or five years to prepare. I am not ready to accept that we will continue in this situation with the war, with millions of refugees and the corresponding high energy prices, for five years.

We need to stop the war earlier, and then we still need to achieve our 2030 targets. On top of that, the social dimension of the transition is even more urgent in these times of high energy prices. It is quite clear from all the discussions I have had, especially with the member states, that we will not have a social climate fund if we are not ready to accept the ETS 2. Hence, it is in my view unacceptable to just scrap the ETS 2 and give up on the issue on decarbonisation in heating and transport.   

We need a compromise. Besides a stronger and more comprehensive social climate fund, which really assures that those in need are supported, including an earlier start, there are mainly two important elements of a compromise that I envisage: first, a price cap. It should be clear that the price of ETS 2 must not go through the roof, and we must start smoothly so that people can adapt. Many colleagues have tabled amendments in this respect, for example, with price margins between €20 and €60.

I think the lower limit is not necessary because if we decarbonise and the price goes to zero we should all be happy. An upper limit is an important part of a compromise. Second, colleagues from the two biggest groups in the European Parliament have suggested that part of the efforts should be taken by oil producers, rather than final consumers. And yes, their margins are sometimes remarkable. There are examinations in many member states to find out if companies made windfall profits in these days.  

The strengthening of the ETS 1 as suggested by the European Commission is also crucial to achieve our 2030 targets. However, I am very sceptical that it is right, like some groups on the Committee on Environment, Public Health and Food Safety (ENVI) suggest, to dramatically increase the ambition. In contrast to ETS 2, the price shock from ETS 1 will occur immediately if we take a decision in the European Parliament. The market already exists and reacts to all signals. 

ETS 1 will not only hit industry but also electricity consumers. Electricity, however, is the fuel of the transition. Heat pumps, electric vehicles and many other decarbonisation technologies will only be used at large scale if we do not have skyrocketing electricity prices. 

I believe we should under no circumstance question the 2030 target and may even have to increase our efforts.

While gas and oil are the fuel of the war, electricity is the fuel for the transition. Therefore, if we want a smooth transition, electricity prices should not go through the roof. That is why we need a careful strategy that avoids price shocks.  

In summary, I believe we should under no circumstance question the 2030 target and may even have to increase our efforts. However, in the short term, we need to implement a policy that avoids dramatic price shocks before industry and electricity consumers can adapt. That means we need a stronger mechanism to control the market, including more transparency to avoid manipulation. To achieve ambitious targets, it may be more useful to have higher linear reduction factors instead of a one-off reduction when the amended ETS is implemented in the year 2024.

Those who are arguing for more immediate ambition in ETS 1, while simultaneously opposing ETS 2, will create exactly what they claim to avoid: a price shock, particularly in electricity, the fuel of the transition, which creates challenges for low-income families and SMEs, while at the same time, not giving the right framework for decarbonisation in heating and transport. Hence, discouraging the people we most need, for example the producers and installers of heat pumps and solar panels. 

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