According to the Professor of Sustainability, this proposal has sparked a much-needed discussion on carbon pricing measures ahead of the EU-wide implementation of the ETS2.
Given the minimal reduction in transport emissions in Germany to date, there is increasing pressure on the government to intervene to ensure alignment with climate targets. The Free Democratic Party (FDP) has released a proposal to reduce road transport emissions. The proposal includes the creation of a national emissions trading scheme in which the price for carbon emissions would be determined by market forces. In a Euractiv piece from 22 March 2023 covering the FDP proposal, Christian Flachsland, Professor of Sustainability and director of the Hertie School Centre for Sustainability, says that the proposal has kicked off necessary debate on carbon pricing measures.
According to Flachsland, the free-floating carbon pricing mechanism in the FDP proposal would likely result in immediate increases in the price for CO2. While it is difficult to predict exactly how high the price for CO2 will be, consumers would feel the effect of this price increase in the form of higher prices for petrol and diesel fuel. Under this proposal, revenues from the pricing scheme would be redistributed back to citizens in the form of a climate bonus.
Beyond the FDP proposal, these discussions about carbon pricing measures and protecting vulnerable citizens from CO2 price shocks are necessary as the EU and Germany consider future policies. The Emissions Trading System 2 (ETS2), which will likely be implemented EU-wide in 2027, is also a system based on free-floating price formation and redistribution. The FDP proposal, Flachsland says, raises the question of “whether the politicians and the population are prepared to withstand such a CO2 price shock, as far as redistribution is concerned.”
The ETS2 aims to limit carbon prices to 45€ per tonne, even with the law's proposed price stability mechanisms, experts say that this price could very well be exceeded.In a second Euractiv piece from 13 April 2023, Flachsland explains that there are no guarantees that this price will hold. He says that prices are likely going to be higher, and that EU countries should “urgently introduce measures to compensate vulnerable citizens for increasing carbon prices.” He also points out that setting realistic expectations about the price of CO2 is an important communication problem for policymakers.
Read the full articles here (March 2023) and here (April 2023).
About our experts
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Christian Flachsland, Professor of Climate Policy | Director, Centre for Sustainability