Social Europe

  • EU Forward Project
  • YouTube
  • Podcast
  • Books
  • Newsletter
  • Membership

The too-invisible hand of the EU emissions market

Riccardo Nigro 27th April 2022

Europe has lost almost two precious decades to decarbonise industry due to one of the worst designed EU policy instruments.

Industrial Emissions Directive,IED,Emissions Trading Directive,ETS,CO2 price
it was appealing simple to think that carbon trading would turn the trick on climate change—too simple (FrankHH/shutterstock.com)

When European Union policy-makers envisaged the Emissions Trading System (ETS) in 2003 as their single tool to drive down greenhouse-gas emissions (GHG), it looked like a win-win approach. Industry, non-governmental organisations and public authorities welcomed the directive with its market-based mechanism, putting a price on greenhouse gases, to reduce emissions in a ‘cost-effective’ way.

Almost 20 years later, the ETS has not however delivered on its promise. The ‘invisible hand’ of the market has been way too invisible, failing to send a sufficiently strong price signal on carbon dioxide to encourage big polluters to reduce their emissions and so arrest climate change.

Between 2005 and 2020, the CO2 price rarely surpassed €20 per ton, reaching €30 a ton for the first time only in late 2020. Since then, it has steadily increased and remains stable at around €70-80. Yet that is still not enough.

According to the Organisation for Economic Co-operation and Development, the current CO2 price is an undervaluation which fails to internalise the real cost of emissions for the planet and their impact on society—a price per ton more in line with the actual social cost of emissions would be €120. The European commission directorate-general for mobility and transport, DG MOVE, contends that the true climate cost of CO2 would indicate €250 a ton, while a study by the Agora Energiewende think tank argues that, for industry to have a ‘business case’ to take up decarbonisation technologies, the price should be of the order of €100-170.

Quasi-religious faith

Yet the ETS cannot be the only tool to decarbonise our economy at the pace needed to tackle the climate crisis. Addressing it cannot be left to business plans.

Blinded by a quasi-religious faith in the market, policy-makers explicitly prevented the Industrial Emissions Directive (IED) of 2010 including GHG emission limits in the permits needed by industrial installations to operate. They thereby built an impenetrable wall separating two directives which could have worked quite well together, delivering a more rapid decarbonisation since than the inadequate reduction observed.



Don't miss out on cutting-edge thinking.


Join tens of thousands of informed readers and stay ahead with our insightful content. It's free.



What is needed in addition to the one-club, market-based ETS is a regulatory framework. This should set clear and binding CO2 emissions ceilings and a well-defined pathway to drive themdown, consistent with the 2015 Paris Agreement.

Just as the price of petrol is not enough to make drivers avoid speeding on highways, the price of CO2 is not sufficient to make industry decarbonise. We need speed limits to slow down cars and CO2 limits to reduce emissions quickly.

Polluting for free

Under the ETS, the European Commission also grants big emitters a licence to pollute at no cost, thanks to the system of ‘free allowances’. According to market operators’ forecasts, up to €550 billion of public funds will be thus transferred to industry by 2030. That’s two-thirds of the NextGenerationEU funds earmarked for recovery from the pandemic.

The Carbon Border Adjustment Mechanism must replace those free CO2 allowances if the purpose of the instrument is to tackle ‘carbon leakage’. Otherwise, this tool will only provide additional protection to big emitters in the global market, shielding them with a double layer from one of the key principles of EU environmental legislation—the ‘polluter pays’ principle.

Industry players often claim they need a ‘predictable’ market environment to reassure them and their shareholders, so their companies can take business decisions good for profits and for the environment. Yet when it comes to decarbonisation, if they must choose between an instable market instrument such as the ETS and a long-term regulatory framework setting emission limits until 2050, with clear intermediate steps—as could be established under the IED—they opt for the former.

Indeed, now that the ETS is starting to bite a bit more, thanks to higher CO2 prices, some industry figures, and some member states, are even advocating that it be ‘suspended’—without proposing any other way to reduce emissions.

Unique opportunity

This week, policy-makers working on the review of the ETS face a unique opportunity to fix past errors. Members of the European Parliament can vote for an amendment (number 1636) to the directive, presented by the shadow rapporteur and German green MEP Michael Bloss. This would do exactly what is needed—put clear and binding limits on emissions to drive them down.

Such an amendment would not only design an evident and stable path for decarbonising the energy sector. It would also guarantee a steady displacement of imported fossil fuels and reduce their health costs to European citizens.

This is a chance for MEPs to make history and be remembered for their foresight—not their blindness.

Riccardo Nigro
Riccardo Nigro

Riccardo Nigroworks in the industry team of the European Environmental Bureau. For years he has been campaigning on the decarbonisation of industrial plants in Europe, covering several industrial transformation files, such as the industrial-emissions directive and its links with the ETS directive.

Harvard University Press Advertisement

Social Europe Ad - Promoting European social policies

We need your help.

Support Social Europe for less than €5 per month and help keep our content freely accessible to everyone. Your support empowers independent publishing and drives the conversations that matter. Thank you very much!

Social Europe Membership

Click here to become a member

Most Recent Articles

u4219834dafae1dc3 2 EU’s New Fiscal Rules: Balancing Budgets with Green and Digital AmbitionsPhilipp Heimberger
u42198346d1f0048 1 The Dangerous Metaphor of Unemployment “Scarring”Tom Boland and Ray Griffin
u4219834675 4ff1 998a 404323c89144 1 Why Progressive Governments Keep Failing — And How to Finally Win Back VotersMariana Mazzucato
u42198346ec 111f 473a 80ad b5d0688fffe9 1 A Transatlantic Reckoning: Why Europe Needs a New Pact Beyond Defence SpendingChristophe Sente
u4219834671f 3 Trade Unions Resist EU Bid to Weaken Corporate Sustainability LawsSocial Europe

Most Popular Articles

u4219834647f 0894ae7ca865 3 Europe’s Businesses Face a Quiet Takeover as US Investors CapitaliseTej Gonza and Timothée Duverger
u4219834674930082ba55 0 Portugal’s Political Earthquake: Centrist Grip Crumbles, Right AscendsEmanuel Ferreira
u421983467e58be8 81f2 4326 80f2 d452cfe9031e 1 “The Universities Are the Enemy”: Why Europe Must Act NowBartosz Rydliński
u42198346761805ea24 2 Trump’s ‘Golden Era’ Fades as European Allies Face Harsh New RealityFerenc Németh and Peter Kreko
startupsgovernment e1744799195663 Governments Are Not StartupsMariana Mazzucato
u421986cbef 2549 4e0c b6c4 b5bb01362b52 0 American SuicideJoschka Fischer
u42198346769d6584 1580 41fe 8c7d 3b9398aa5ec5 1 Why Trump Keeps Winning: The Truth No One AdmitsBo Rothstein
u421983467 a350a084 b098 4970 9834 739dc11b73a5 1 America Is About to Become the Next BrexitJ Bradford DeLong
u4219834676ba1b3a2 b4e1 4c79 960b 6770c60533fa 1 The End of the ‘West’ and Europe’s FutureGuillaume Duval
u421983462e c2ec 4dd2 90a4 b9cfb6856465 1 The Transatlantic Alliance Is Dying—What Comes Next for Europe?Frank Hoffer

Hans Böckler Stiftung Advertisement

WSI Report

WSI Minimum Wage Report 2025

The trend towards significant nominal minimum wage increases is continuing this year. In view of falling inflation rates, this translates into a sizeable increase in purchasing power for minimum wage earners in most European countries. The background to this is the implementation of the European Minimum Wage Directive, which has led to a reorientation of minimum wage policy in many countries and is thus boosting the dynamics of minimum wages. Most EU countries are now following the reference values for adequate minimum wages enshrined in the directive, which are 60% of the median wage or 50 % of the average wage. However, for Germany, a structural increase is still necessary to make progress towards an adequate minimum wage.

DOWNLOAD HERE

S&D Group in the European Parliament advertisement

Cohesion Policy

S&D Position Paper on Cohesion Policy post-2027: a resilient future for European territorial equity

Cohesion Policy aims to promote harmonious development and reduce economic, social and territorial disparities between the regions of the Union, and the backwardness of the least favoured regions with a particular focus on rural areas, areas affected by industrial transition and regions suffering from severe and permanent natural or demographic handicaps, such as outermost regions, regions with very low population density, islands, cross-border and mountain regions.

READ THE FULL POSITION PAPER HERE

ETUI advertisement

HESA Magazine Cover

With a comprehensive set of relevant indicators, presented in 85 graphs and tables, the 2025 Benchmarking Working Europe report examines how EU policies can reconcile economic, social and environmental goals to ensure long-term competitiveness. Considered a key reference, this publication is an invaluable resource for supporting European social dialogue.

DOWNLOAD HERE

Eurofound advertisement

Ageing workforce
The evolution of working conditions in Europe

This episode of Eurofound Talks examines the evolving landscape of European working conditions, situated at the nexus of profound technological transformation.

Mary McCaughey speaks with Barbara Gerstenberger, Eurofound's Head of Unit for Working Life, who leverages insights from the 35-year history of the European Working Conditions Survey (EWCS).

Listen to the episode for free. Also make sure to subscribe to Eurofound Talks so you don’t miss an episode!

LISTEN NOW

Foundation for European Progressive Studies Advertisement

Spring Issues

The Summer issue of The Progressive Post is out!


It is time to take action and to forge a path towards a Socialist renewal.


European Socialists struggle to balance their responsibilities with the need to take bold positions and actions in the face of many major crises, while far-right political parties are increasingly gaining ground. Against this background, we offer European progressive forces food for thought on projecting themselves into the future.


Among this issue’s highlights, we discuss the transformative power of European Social Democracy, examine the far right’s efforts to redesign education systems to serve its own political agenda and highlight the growing threat of anti-gender movements to LGBTIQ+ rights – among other pressing topics.

READ THE MAGAZINE

Social Europe

Our Mission

Team

Article Submission

Advertisements

Membership

Social Europe Archives

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Miscellaneous

RSS Feed

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

BlueskyXWhatsApp