Transport and emission trading system

Date: 19, October 2015
On October 13, 2015 NLA participated in a workshop on the European Emissions Trading System, (ETS) organized by CER, the organization for European railway operators. Speakers at the workshop were Ethem Pekin from CER, Damien Meadows from DG Clima and Hector Pollitt from Cambridge Econometrics. The effect of the ETS is that carbon emissions are priced. Quotas are auctioned out, and the revenue (310 million euro in 2012 in the EU) has to be used to “tackle climate change”. Ten percent is earmarked for low-income countries, to be used to improve infrastructure and investment in sustainable energy. Exactly how the member states use the revenue is up to them. In Sweden for instance, all revenue goes to the UN Green Climate Fund.

Transport is today excluded from ETS. One reason is the relatively more costly reduction of greenhouse gas emissions within the transport sector compared to for instance heavy industry. Transport is instead included in the Effort Sharing Decision (ESD), which establishes binding annual greenhouse gas emission targets for Member States. The railway operators are suggesting that road transport as well as other forms of transport should be included in the ETS. This would imply an 11 percentage points increase in the reduction targets for road transports (from 10% to 21% for the period 2005-2020). However, Meadows pointed out, that since 2005, member states can opt to include transports in ETS. None has, why it is questionable why forced inclusion of transports would be attractive.

The workshop stated that the railway is already indirectly included in the ETS. More than 80% of European trains are run by electric traction, and 50% of European rail is electrified according to ECR. The generation of electricity is included in the ETS, why rail transport already is indirectly affected by the ETS scheme, unlike road transports. This is why the European Railway operators wants all transports to be included in ETS. As it is now, rail is indirectly included and road and aviation walk free, they argue.

Pricing carbon as the ETS does is a so called “market based instrument”, and the price thus fluctuates with the boom and bust of the economy. The price of carbon moves along the price of oil. Hector Pollitt, an economist who has worked on the quantitative impacts of including road transports in the ETS had researched the query: “if transports were included in the ETS, would price volatility be reduced?” A common argument for including transports is precisely that it could contribute to stabilizing the price of CO2. However, as Pollitt’s analysis show, only passenger transport is fairly stable and independent from the cyclical economy (e.g. people still travel to work during recession). Freight transport is pro-cyclical, and moves with the economy. In addition, the price of carbon would be significantly higher for all industries were transports to be included in the ETS scheme.

It can be noted that representatives from the NGO Transport & Environment (T&E), pointed out that the inclusion of road transports in ETS would only raise the price of fuel with 2 euro cents per liter compared to today. For freight transports the increase is even lower, and state aid in the name of fair competition would surely follow to compensate for any increases in the price of fuel. T&E therefore believe that the ESD is a much more effective way of decarbonizing transports.

A representative from DG Move who was a participant at the workshop further stressed this point: ESD is more effective when it comes to road transports, and the White Paper on Transport is an ambitious, long term plan for decarbonizing transports that would work more effectively and efficiently than an inclusion of transport in the ETS systems.

“Road transport is prepared to pay its share of external costs, but it needs to be a complete analysis” comments Soren H Larsen, CEO of NLA. “Road transport is already paying a lot in charges and taxes, not least fuel taxes at the pump. These contributions must be taken into account when assessing contributions to paying for CO2. Furthermore, alternatives need to be available. A lot is happening on alternative fuels, but the ambitions still seem to be low and the lack of a harmonized solution still makes the choice of technology a difficult decision for an operator”.