European Union votes on reforms to Emissions Trading System

On February 15, the European Parliament adopted draft reforms of the EU’s emission trading system (ETS), the centrepiece of European emissions reduction policy – choosing the less ambitious proposal of a reduction on the cap on emissions of only 2.2% per year until at least 2024. Climate Action Network Europe’s  Letter to Policymakers   ahead of the vote outlined the arguments and proposals for environmentally-ambitious change, including a higher price on carbon and inclusion of the cement, aviation and shipping industries. Its reaction after the vote   stated: “It is shocking that the Parliament chose to bow to the interests of polluting industries instead of protecting citizens from a catastrophic climate breakdown. The Parliament has completely failed the first test of its commitment to the Paris Agreement. The proposed reforms will keep the carbon market ineffective for a decade or more. We urge progressive EU governments to finally turn the ETS into a functioning tool and create a stimulus to ditch old models and move to green economy.”    One of the  three reforms urged by 31  environmental organizations in  an Open Letter to the MEP’s in November 2016 had been the establishment of the Just Transition Fund for  communities and regions which need support to transition away from coal.  The reforms will be debated next at the Council of Environment Ministers on 28 February; the  EU’s 28 governments must negotiate further to finalize the legislation.

Where do unions stand on Carbon Markets?

In a Working Paper titled Carbon Markets After Paris: Trading in Trouble , Sean Sweeney, Coordinator of Trade Unions for Energy Democracy (TUED),  argues that it is time for unions to reevaluate their stance on emissions trading. He asserts a “Paris Contradiction” –   that the INDC’s targets from COP21 in Paris in December 2015 are not sufficient to reduce GhG emissions, and  are part of a “neo liberal fantasy”.  Focusing on Europe and the problems of the European carbon market ( the EU ETS), Sweeney criticizes the  European Trade Union Confederation for its “defensive approach (prevention of carbon leakage and the protection of existing jobs)”, and its continued participation in the Social Partnership framework. In his accompanying blog , he states:  “ Facing up to the the failure of carbon markets will allow unions and their allies to better concentrate on developing and organizing around the kind of programmatic commitments that can seriously tackle climate change and the systemic roots of the crisis…. by extending social ownership of key sectors like energy, a genuine ‘just transition’ is possible and that unions can play an important role in making it happen.”    Even outside the neo-liberal fold, Sweeney’s call to reject carbon markets is controversial.  The European Trade Union Confederation, subject of Sweeney’s criticism, most recently issued its  “Position on the structural reform of the EU Emissions Trading System”  in December 2015, reflecting a concern for “carbon leakage” but demanding a Just Transition Fund to protect workers.  The ETUC claims to have consulted widely amongst European labour unions to reach its position.   The Canadian Labour Congress, in the lead-up to COP21 stated (Nov. 2015)  “The Canadian labour movement supports a national cap and trade carbon-pricing system”, and the Canadian Union of Public Employees, in its response to the 2016 Federal Budget  states, “CUPE supports putting a price on carbon, but it must be done in a progressive way that penalizes corporate polluters rather than low-income and working Canadians. Revenues raised from carbon pricing should be used to invest in complementary green investments, job retraining, create green jobs, and to mitigate negative impacts of climate change and carbon pricing measures on vulnerable Canadians.”  See also  Marc Lee, “Don’t believe the Hype on B.C.’s Carbon Tax” (March 4), and in the U.S.,   the Center for American Progress called for an integrated North American carbon market on March 17.

Carbon Pricing: Provincial differences and the risk of Carbon Leakage

In the second of two reports it has published on carbon pricing, the EcoFiscal Commission concludes that “In the context of a $30 per tonne carbon price, only a small number of sectors, representing less than 5 per cent of Canada’s economy, are likely to experience significant competitive pressures. Even with a $120 per tonne carbon price … 90 per cent of Canada’s economy would still be virtually unaffected by competitiveness challenges. ”   Provincial Carbon Pricing & Competitiveness Pressures: Guidelines for Business and Policy Makers  examines the economies of British Columbia, Alberta, Ontario, and Nova Scotia, and states that impacts will differ across sectors and provinces. In Alberta, 18 % of the economy is potentially exposed, compared to 2% in B.C., Ontario, and Nova Scotia.   The report recommends targeted, transparent, and temporary support measures for genuinely vulnerable industries, in the form of free permits (under a cap and trade system) or carbon tax rebates. Other recent reports related to carbon pricing: Implementing Effective Carbon Pricing  from the New Climate Economy; “The Path to Carbon Pricing” by Christine Lagarde (IMF) and Jim Yong Kim (World Bank) in Project Syndicate; and Uses of Revenue from Carbon Pricing in which the Climate Markets and Investment Association forecasts that globally, governments will raise $22 billion in climate revenue in 2015. From Resources for the Future, Lessons Learned from Three Decades of Experience with Cap-and-Trade examines U.S. programs and the European ETS.