How can the EU stay within its 1.5 degree compatible emissions budget in the framework of the EU Emissions Trading System?

Julian Stöckle

Bachelor's thesis

Jak může EU zůstat v rámci svého emisního rozpočtu kompatibilního s 1,5 stupněm v rámci systému EU pro obchodování s emisemi?

Abstract:

Tato práce zjišťuje, že současné cíle EU v oblasti snižování klimatu a následně trajektorie stropů systému obchodování s emisemi (ETS) jsou nedostatečné k tomu, aby zůstaly v rámci 1,5 stupně sladěného regionálního rozpočtu EU na emise. Aby EU dodržela svůj rozpočet 39,7 Gt CO2, musela by zvýšit svůj emisní cíl do roku 2030 z 55 % na 63 % a následně lineární redukční faktor ročního emisního stropu ze 4,22 % na 4,83 % pro stávající ETS 1 a z 5,15 % na 5,90 % pro plánovaný ETS 2.

Abstract:

This thesis finds that current EU climate reduction targets and in turn the Emissions Trading System (ETS) cap trajectories are insufficient to stay within the 1.5 degree aligned regional emissions budget for the EU. To adhere to its budget of 39.7 Gt CO2, the EU would need to raise its 2030 emissions target from 55% to 63% and in turn the linear reduction factor of the annual emissions cap from 4.22% to 4.83% for the existing ETS 1 and from 5.15% to 5.90% for the planned ETS 2. This paper utilised a mixed scenario approach to calculate the EU emissions budget, with a focus on the equity principle by ¾ and on the least-cost principle by ¼. To stay within this emissions budget, thus, the EU should, on that basis not exceed a cumulated 39.7 Gt CO2e from 2022 for nature-based net-zero 2050 trajectories. The current target of 55% reductions by 2030 would go considerably beyond this budget, with a total of 44.9 Gt CO2e. Therefore, an increase of the 2030 target to 63% is incumbent to ensure alignment with the Paris Agreement. The sectors covered by the existing ETS 1 – bigger-sized industry, most heat generation, electricity, and domestic aviation – are responsible for up to 40% of GHG emissions and have in comparison with non-ETS sectors progressed steadily on emission reductions, although the 43% from 2005 – 2020 overstate the impact through the system due to non-ETS factors such as pandemic-related lower economic activity in 2020. However, the 61% reduction benchmark by the Commission falls short of what is needed to bring the ETS 1 sectors on track of 63% emission cuts by 2030. Instead, a curb by nearly 70% is incumbent. The envisaged broader scope to include the maritime sector from 2023 can help lower emissions in the sector which have only slowly declined for around a decade. With the planned extension of the ETS until the mid-2020s to a separate system for road transportation and the remaining building emissions (ETS 2), the Commission will cover an additional third of overall emissions from sectors with little improvement in recent years. Meanwhile, there is potential and an urgent need to prioritise the abatement of methane emissions, despite problems around verifiability and reporting. As this issue has not been a key part of this paper’s analysis, it may be valuable input for complementary studies. The analysis of the emissions budget, linear reductions for annual ETS caps, and sectoral reduction targets need to be considered with this limitation in mind. The sectoral emission reduction targets for 2030 would for a 63% scenario need to be hiked from 61% to 70% for the ETS 1 sectors and from 43% to 49% for the ETS 2 sectors. This would bring an increase of the necessary linear reduction factor of the annual emissions cap from 4.22% to 4.83% for the ETS 1 and from 5.15% to 5.90% for the ETS 2. Assuming an overall coverage of 71.4% of EU emissions, both systems would then stay under their proportional share of the 39.7 Gt CO2e emissions budget. In conclusion, the EU should indeed hike its ambition, by a relatively realistic additional 8 percentage points from the original 55% target, to fulfil its commitment under the Paris Agreement in a reasonably cost-effective way.

Keywords

Systém pro obchodování s emisemi, Klimatické cíle, Uhlíkové emise, Lineární redukční faktor, Rozpočet emisí

Keywords

EU Emissions Trading System, EU ETS, Carbon Budget, Emissions Budget, CO2 emissions, Climate Targets, Linear Reduction Factor

Language used: English

Date on which the thesis was submitted / produced: 13. 3. 2023

Thesis defence

• Date of defence: 20. 3. 2023
• Supervisor: Radek Čajka

Vysoká škola ekonomická v Praze

Bachelor programme:
International Business