Cambridge Econometrics informs the European Commission’s ‘Fit for 55 by 2030’ package

Last week the European Commission tabled ‘Fit for 55 by 2030’; a package of energy and climate laws that have been revised and amended in order to set out a more ambitious pathway to achieve the reduction of greenhouse gases by 2030 to 55% of the 1990 greenhouse gases level.

The aim of the package is to set the EU on a more ambitious pathway to achieve this reduction target and involved a set of interconnected legislative proposals . One significant revision was the EU Emissions Trading System (ETS) where a parallel ETS for the transport and heat sectors was proposed.

This particular revision of the ETS was informed by a recent study by Cambridge Econometrics for the European Climate Foundation and Transport & Environment, which shows that, if well designed, more rapid decarbonisation in the heat and transport sectors could lead to positive macroeconomic impact for Europe, but that it must be designed carefully to avoid putting a disproportionate burden on low-income households.

Dóra Fazekas, Managing Director of Cambridge Econometrics Hungary, said:

Using 50% of the revenues amounting to €72.2bn 2025-32 from the sales of allowances should be more than enough to compensate for the burden on poorer Member States and households and still leave room for financing other green measures.

The Cambridge Econometrics report evaluated the impacts of relying solely on the establishment of a parallel ETS to deliver the needed emissions reductions, with different options for re-using revenues generated by the sale of allowances, against a regulations-focussed mix of policies.

The study is also in line with the revised ETS; it realises the need to mitigate the distributional effects of policies, promotes energy efficiency for energy poor, sees ETS revenues as a source of funding, promotes technical assistance and access to funding and finance.

Another report was published recently by the Polish Economic Institute, the European Roundtable on Climate Change and Sustainable Transition, and Cambridge Econometric which looked at the impact of including transport and buildings in the EU ETS. It concluded that it would have little additional impact on emissions from these sectors, but would increase living costs for poorer households.

Click here for the full report, and here for the video recording of the European Parliament workshop ‘2030 climate target: extension of ETS to transport emissions’ in June.