ETS reform: How to avoid a new ‘green iron curtain’ in Europe

(EurActiv, 1 Sep 2021) Current shortcomings in Europe’s emissions trading scheme threaten to pull a green iron curtain between central and eastern Europe and the rest of the EU, but used correctly, the system could boost decarbonisation in the region, argue Claire Godet and Linda Zeilina.

Claire Godet is a research fellow at the Prague-based International Sustainable Finance Centre (ISFC) and a researcher at the think tank E3G. Linda Zeilina is CEO at ISFC.

Since 2005, one of the main European policies to mitigate climate change has been the Emissions Trading Scheme (ETS). Not only has its effectiveness been limited, but it has also failed to contribute to the East-West convergence.

Instead, the new Fit for 55 package risks creating a new green iron curtain in Europe, if Central and Eastern Europe (CEE) continues to fail in fully taking advantage of the opportunities created by the ETS and the EU’s Sustainable Finance Agenda.

The ETS was created with two complementary objectives in mind: to provide incentives to reduce emissions by increasing the carbon price and to create new streams of revenue.

So far, the regulators’ main focus has been on increasing carbon price: the reduction of the total cap, the creation of the Market Stability Reserve and the reduction of free allowances were all measures taken to ensure a significant carbon price.

However, concern for high prices has overshadowed the secondary motivation behind the ETS: investing revenues to increase prosperity and speed up transition. It is almost inevitable that carbon prices will rise, so from now on, using the ETS money to jumpstart economic growth and decarbonisation should become a priority for the CEE region.

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EurActiv, 1 Sep 2021: ETS reform: How to avoid a new ‘green iron curtain’ in Europe