The right to emit CO2 can be traded. This is not a scandal; in fact, emissions trading is a powerful tool for combating climate change without doing so at the expense of society. The real scandal is that the majority of politicians seem not to have understood emissions trading.
First, European emissions trading ensures that emissions are only ever released into the air to the extent of the rights issued. Second, as prices rise, the savings are always made by the companies that can do it most cheaply: Anyone who can avoid a ton of CO2 or equivalent emissions for less than 60 euros, which currently has to be paid for a pollution right, avoids. Those with higher avoidance costs must buy emission rights from others. This enables cost-efficient climate protection for society as a whole.
Every day, polluters use rights and thus cancel them. Several times a week, new emission rights are added by the member states through auctions. The revenues from the auctions flow into the respective national budgets. The number of new rights auctioned by the member states each year decreases by 2.2 percent. In fact, the annual reduction would probably have to increase significantly to contribute more effectively to limiting the increase in the global average temperature to 1.5 degrees. In addition, since 2019, many hundreds of millions of “surplus” allowances have been removed from the market each year via the Market Stability Reserve to correct mistakes made in the early days of emissions allowance trading.
Ultimately, the EEG acts like a cross-subsidy for Europe’s biggest climate sinners.
The price of emission rights only determines who is allowed to emit. It has no influence on the quantity of emissions. This depends only on the quantity of available emission rights. If you think one step further, it becomes clear that the discussion about when which coal-fired power plant should be shut down misses the point: the decisive factor is that the number of emission rights is reduced. To do that, all the government would have to do is buy up rights and shut them down. Conceptually, reducing their auction volume would be even simpler, but possibly more problematic under European law.
Compensation payments to energy producers for forced shutdowns would not be incurred when buying up emission rights. Because of the rising price, some polluter in Europe would be willing to avoid emissions, and that would be the polluter for whom avoiding a ton of emissions is cheaper than buying rights. Polluters for whom the willingness to pay is not great enough to pay for the increased cost of their emissions would have to forego profits or cease operations. Both would be in the interest of society as a whole.
Although this is not difficult to understand, at least in the outlines outlined here, for more than ten years, federal governments in different compositions have consistently ignored the regulatory framework they themselves created for major legislative initiatives on climate protection.
The EEG levy has subsidized the expansion of renewable energies to the tune of more than 100 billion euros. Even though their share of the electricity mix has risen sharply, this has not led to a reduction in emissions in Europe since emissions trading was set up in 2008. The more clean electricity households generate, the less climate-damaging electricity the energy companies sell. Because they therefore also have to generate less electricity, they need fewer emission rights. However, these do not disappear as a result, but are simply bought by someone else, who is then allowed to pollute more with them than before.
The German Council of Economic Experts, the Monopolies Commission and the Ifo Institute pointed out the EEG’s lack of contribution to climate protection in various reports as early as 2009; nothing has changed. In fact, paradoxically, the EEG levy borne by electricity consumers in Germany has only slowed down the price increase of emission allowances in Europe due to the rights being released and shifted emissions to other sectors or countries. Ultimately, the EEG has the effect of cross-subsidizing Europe’s biggest climate polluters – it is possible that without the EEG, one or the other polluter would have had to cease production earlier because of the higher price increase.
There is some evidence that the same mistakes are being made again. Even if homeowners are obliged in the future to release their roofs for the installation of photovoltaic systems, this will have no effect on emissions in Europe when viewed in isolation because of EU emissions trading. The emission allowances will simply be used elsewhere. In fact, to the extent that emissions are saved by additional renewable energy sources, the German government would have to buy up and retire emissions allowances so that they cannot be used by anyone to legitimize emissions. Each additional solar cell would then contribute fully to avoiding emissions and would no longer have any effect on the price of emission rights.
Time is of the essence. It is high time for politicians to pull together with citizens so that every individual can effectively contribute to climate protection. What we can no longer afford are more well-intentioned but ineffective feel-good legislative initiatives.
By Hanjo Allinger
Hanjo Allinger is Professor of Economics at the Technical University of Deggendorf.
Source: FAZ of 02.11.2021, p. 17 3.
