The New Deal: Reforming the EU ETS to Enhance Low-Carbon Industrial Competitiveness

The Center for Clean Air Policy-Europe published a new report today called “The New Deal: An Enlightened Industrial Policy for the EU through Structural EU Emissions Trading System (EU ETS) Reform.” This report recommends seven reforms to the EU ETS to spur the innovation and investments required to create a thriving and low carbon industrial sector. These reforms include the setting aside of EU ETS allowances into an industrial low-carbon transition fund, a price management mechanism, the structural adjustment of the EU ETS caps toward 2050 and a comprehensive assessment of competitiveness issues related to the EU ETS.

The recommended changes support a more stable carbon price and emissions trajectory that align EU ETS emissions limits with an overall EU pathway of 80 to 95 percent emission reductions by 2050. The proposed modifications would also generate income for the EU, up to €18 billion from 2015 to 2023, to be redistributed to support a product, process and business model innovation-based industrial policy. This vision serves the dual goal of helping to decarbonize Europe’s economy while maintaining competitiveness.

This report outlines a potential compromise that would mitigate most of the concerns about structural intervention in the EU ETS, and also sets out targeted and innovative changes to the current emissions trading system that would make a ‘New Deal’ possible. By incorporating industrial policy and innovation into European climate policy, the EU ETS could become an important tool for assisting structural economic recovery and the build-up of a European competitive advantage.

To become a reality, this ‘New Deal’ needs support from a wide range of stakeholders, including representatives from small and medium enterprises, and industries, as well as researchers and policymakers. These changes would go beyond the band-aid approach for fixing the EU ETS. Structural changes proposed in this report would transform the ETS into a tool that serves to finally decarbonize the European economy.