The new Emissions Trading System ETS and the CO2 Performance Ladder

The Emission Trading System (ETS) has been in place since 2005 for electricity and heat generation, energy-intensive industries and aviation. But as part of the Fit for 55 package, the ETS is getting a major boost. The new EC-ETS proposal strengthens the overall target for the sectors concerned to a 43% reduction in emissions by 2030 (compared to 2005). At the same time, the phase-out of emissions allowances will be accelerated, and from 2027 there will be no free allowances for intra-EU aviation. Shipping to and from the EU will also gradually come to be covered by the system between 2023 and 2026.

In addition, the European Commission proposes to create a new separate ETS for fuels used in road transport and buildings. This will set rules for upstream suppliers of fuels from 2025, with a cap on emissions from 2026. Suppliers will be responsible for monitoring and reporting the amount of fuel they put on the market. This will encourage them to decarbonise their products to reduce compliance costs. Further it will follow the same principles as the current ETS.

And for those who fear that these green measures will drive companies out of the EU, or give an advantage to cheaper, more polluting foreign industry - the EU is introducing a carbon border adjustment mechanism (CBAM). This will keep the playing field level by pricing the CO2 content of products imported into the EU.

The CO2 Performance Ladder has been proven to be effective in reducing emissions - companies using the Ladder reduce twice as quickly. Thus, the Ladder can contribute to the goals of the ETS in the relevant sectors. At the same time, if the ETS is extended to more sectors as is proposed, the explicit CO2 price will provide a clear incentive to reduce energy use and improve energy efficiency, especially at the right price. The CO2 Performance Ladder is extremely suitable to help achieve those goals.

Thus the ETS pushes for CO2 reduction, by capping emissions and making them more expensive, and the Ladder helps to embed emissions reduction within organisations.