This legal opinion on the resilience of the EU ETS analyses whether the system is sufficiently crisis-proof to deal with economic downturns, inflation and natural disasters. These crisis scenarios can significantly impair the functioning of the EU ETS. For example, rising energy prices due to crises often lead to increased emissions, as cheap fossil fuels such as coal are increasingly used. Such developments push the system to its limits, as the demand for emission allowances increases and thus the prices for these allowances rise.
Findings of the legal opinion
The report shows that the legal framework of the EU ETS is inadequate for dealing with crisis situations. Deficits exist particularly in the area of the obligation to surrender allowances and its enforcement. Insolvencies or business closures as a result of crises could lead to emissions no longer being covered by certificates. Furthermore, mechanisms to prevent price increases or a massive surplus of allowances are lacking. Overall, the report shows that the EU ETS urgently needs to be reformed in order to be more flexible and robust in the face of crises.
Reform needs and options for action
The report shows that adjustments are necessary in several areas in to increase crisis resilience. Important reform options include clearer regulations for enforcing the obligation to pay the levy, the introduction of a flexible crisis mechanism in the event of force majeure and the creation of measures to stabilise the CO₂ price. It is emphasised that the legal framework for emissions trading should be made more flexible in order to achieve its objectives even in times of crisis.