CO2 price for EU buildings best solution: BPIE

(eceee news, 18 Jun 2021) A new briefing from the BPIE shows that an EU-wide CO2 price in the buildings sector is a missing element in the policy instrument mix, and a better solution than extending the EU Emissions Trading Scheme to buildings.

According to the Renovation Wave Strategy, the buildings sector must contribute a 60% emission reduction to achieve the EU’s 2030 climate target, which requires an increase of deep renovations from currently 0.2% to 3% annually and well-designed policies to overcome the distinct barriers of the sector.

Today, an introduction of an Emissions Trading Scheme (ETS) for transport and buildings, is being discussed, either by:

  • extending the current EU ETS or,
  • by setting up a separate scheme for buildings and transport

According to BPIE, both options would imply a transfer of the compliance mechanism at least partly from the Member States to an Emissions Trading Scheme and the regulated parties. It would thereby result in a reform of the Effort Sharing Regulation (ESR). Another option is that national targets under the ESR could be strengthened to reflect the new climate protection targets.

According to the briefing, EU Member States have implemented a broad range of energy and carbon taxes, levies, and support schemes to achieve their national GHG emissions reduction targets. Some countries are making use of a carbon price at national level for heating fuels with price levels ranging from €24 to €114/tCO2.

However, not all European Member States reap the benefits of a CO2 price signal. Hence, the introduction of an EU-wide CO2 price in the buildings sector is a missing element in the policy instrument mix and worth considering.

BPIE claims that an extension of the EU ETS should be avoided. Key messages form the briefing are:

  • BPIE’s analysis of the policy options shows that a carbon tax system with a steady price increase path is superior to an ETS.
  • The second-best option would be a separate ETS system to reflect the high abatement costs in the building sector, combined with a price corridor. This is favourable to an extension of the EU ETS. 
  • In both cases, a carbon price signal can only work as a complementary instrument to regulatory measures. The compliance mechanism for reducing GHG emissions from buildings and transport has to remain with the Member States under the Effort Sharing Regulation at least partly. A split of responsibility to reduce GHG emissions between parts that will be governed under a possible ETS and those governed by the Effort Sharing Regulation is not impossible but risks creating loopholes and double-counting of emissions reductions.
  • The easiest and most straightforward solution is therefore to keep the Effort Sharing Regulation as the main compliance regime for the buildings sector and extend the policy mix to make sure that targets can be fulfilled. 

View the report here

Or downlead from the BPIE web site