German cabinet agrees domestic ETS

25 October 2019 | Trading

Germany’s cabinet on Wednesday agreed a planned law to introduce an emissions trading scheme for the transport and heating sectors from 2021.

The scheme, announced last month, is part of a package of proposals to ensure the country meets a climate target to cut CO2 by 55% on 1990 levels by 2030.

It will start in 2021 with a fixed carbon price of EUR 10/t that rises to 35/t by 2025. Thereafter, prices will be allowed to float up to a ceiling of EUR 60/t. 

The measure covers two sectors that presently lie outside Europe’s existing carbon market, the EU ETS, which is mostly confined to heavy industry and power generation. 

The government hopes in time to align its domestic scheme with the EU ETS, though critics have expressed doubts this will prove possible. 

Notably, they have pointed to the absence of a supply cap in the German system as a potential source of conflict. 

They have also criticised the carbon prices set under the domestic scheme as too low to encourage the emissions reductions required of drivers and homes. 

"Brutal" instrument
The system's prices were lower than the environment ministry had hoped, but would send a clear signal over time, undersecretary Jochen Flasbarth, the environment ministry's most senior civil servant, told a conference in Berlin.  

He noted a carbon price alone was a "very brutal" instrument that did not guarantee a smooth transition across sectors or regions. 

It risked political backlash, he added, defending the government's decision to use a EUR 54bn mixture of policies including support schemes and technology bans.
Germany has struggled to bring down emissions for transport, buildings or agriculture, which has blunted the impact of its CO2 cuts in the power sector. 

The country is on track to miss its climate target for 2020 – a 40% cut in emissions.

Growing climate protests and rising support for opposition parties have this year pressured the government to develop a more integrated approach to cutting emissions across the economy. 

Under EU rules, member states must find ways to ensure the bloc achieves at least a 40% cut in greenhouse gas emissions below 1990 levels by 2030. Germany is the EU’s biggest emitter of CO2.

Source: Montel