This policy brief presents insights on the historical and future role of carbon pricing in the EU. The findings discussed are drawn from research undertaken by the CECILIA2050 and ENTRACTE projects. A central pillar of EU climate policy, the EU Emissions Trading System (EU ETS) is supposed to guarantee emissions reduction at least cost. Yet, the “flagship” instrument has been paralysed by a surplus of allowances, and resulting low carbon price, and has consequentially not been the driver of low-carbon investment and innovation it was expected to be. Still, carbon pricing is an essential element of the transition to a low-carbon economy. Therefore, the EU ETS must be revitalised sooner rather than later, or the EU risks a higher cost transition and possible fossil fuel lock-in. Four key conclusions can be outlined:
- Conclusion 1: The original idea: the EU ETS as the flagship of an ambitious EU climate policy...but the flagship never left the harbour.
- Conclusion 2: Carbon pricing works - the EU ETS is capable of achieving its core objective: to reduce emissions of the covered installations.
- Conclusion 3: The plan for 2030: reinstate the EU ETS as a key element of EU climate policy, by addressing the allowance suplus that currently inhibits the effectiveness of the EU ETS.
- Conclusion 4: A strong carbon price is needed, now and in the future. A delayed carbon price increases the risk of a high-fossil