Energy price surge intensifies backlash against Brussels carbon tax plan

Climate change updates

Surging gas and electricity prices in Europe have intensified the political backlash against Brussels’ plans to extend carbon taxes on petrol and heating bills, threatening a central policy of the EU’s drive to hit net zero emissions by 2050. 

EU energy ministers will meet in Slovenia on Wednesday to discuss Europe’s record energy costs, which have prompted some governments to prepare billions of euros worth of emergency aid for struggling households.

The price squeeze has emboldened countries such as Spain and France that are firmly opposed to the planned revamp of the EU’s carbon pricing system. They say it will plunge poorer households further into energy poverty by raising household and petrol bills.

As part of its Green Deal package aimed at reducing greenhouse gas emissions, the European Commission has proposed extending the EU’s carbon market to cars and heating for buildings, including homes. Some legislators in the European parliament are now considering scrapping the plan and replacing it with alternative measures such as tougher regulation.

Pascal Canfin, a French MEP and head of the European parliament’s environment committee, which must approve the commission’s green package, said his centrist Renew Europe group was working on plans to “recalibrate” the bloc’s Emissions Trading Scheme (ETS) to prevent a “gilets jaunes 2.0” — a reference to the revolt against planned petrol tax rises in France that began in 2018. 

“I’m not convinced by the need to extend the ETS,” said Canfin, whose concerns about the social impact of the measures are shared by some environmental NGOs, the Greens in the European parliament and centre-left governments in the EU.

The Green Deal comprises 13 policies designed to reduce EU emissions by 55 per cent by 2030 compared with 1990 levels, falling to net zero in 2050.

The plan to extend the ETS to consumer sectors such as cars and housing would raise petrol and energy prices because companies will be forced to buy carbon credits to cover their emissions. Brussels has also proposed a €30bn fund to help compensate those hit hardest by the changes.

Internal EU estimates suggest a carbon price of €50 per tonne on petrol and heating for buildings would impose a €40bn cost on affected companies. “We can afford that increase,” said a senior EU official. 

Canfin said the ETS extension could be made more palatable if the rising CO2 price was not borne by domestic tenants but focused only on commercial buildings. Another option would be to exclude petrol from the ETS and instead toughen emissions targets for the auto industry.

“We have to try and make it work because if it doesn’t, the fear I have is that it will damage the whole [Green Deal] package,” he said.

The commission is resisting wholesale changes to its plans, arguing that extending carbon pricing is the only way to bring down emissions in sectors such as transport, whose carbon footprint has increased over the past decade. 

“If the ETS extension is gone, it leaves a big hole that will need to be filled,” said the EU official. “You can’t simply replace an instrument like the ETS with a new target.”

Disputes over how best to design a carbon pricing mechanism are set to run for months as governments and MEPs thrash out their positions on the ETS and separate plans, including emissions targets for cars, an EU carbon border tax and nationally binding greenhouse gas targets.

Brussels’ plan for a €30bn social climate fund has roused opposition in so-called frugal northern states such as the Netherlands and Nordic nations, which are opposed to financial transfers the commission says are crucial for social fairness. But southern and eastern countries are pushing for a bigger pot of money to limit the regressive impact of higher carbon costs.

Nicolas Schmit, EU employment commissioner, told the FT that Brussels would supplement the climate fund with additional measures to alleviate the social impact of climate policy, including plans for worker retraining.

“We will not leave anyone to fend for themselves, not when it comes to affording their energy bills, nor when it comes to getting ready for the new ‘greener’ jobs,” said Schmit. 

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