Speech by President von der Leyen at High level event on carbon pricing organised by the Carbon pricing leadership coalition and Canada in Glasgow

I believe I can say that the EU has demonstrated over the last two decades that pricing carbon works.

It has helped us decouple economic growth from greenhouse gas emissions.

And it has done so cost-efficiently.

In the EU, we have a functioning carbon market already since 2005 and it works very well.

The EU ETS covers

roughly 11,000 industrial installations and power plants

and 500 airlines.

Overall, the sectors covered by the EU ETS have already reduced their combined emissions by around 45%.

As part of our plan to reduce emissions by at least 55% by 2030,

the Commission has proposed to both strengthen and expand emission trading in Europe.

  1. We have proposed a new target to reduce emissions in the current ETS sectors.

Markets reacted well to this ambition increase.

Carbon prices rose from around EUR 25 at the end of 2020 to around EUR 60 today.

  1. We propose to extend emission trading to new sectors, such as maritime transport.
  1. And we propose to apply emission trading as well to road transport and heating and cooling of buildings.

These sectors are very difficult to decarbonise.

  1. The use of revenues from carbon pricing is a powerful tool to accelerate the green transition through support to innovation and modernisation.
  1. And it provides for social compensation.

We propose that our Member States use the increased revenues from emission trading to compensate vulnerable households.

That challenge of energy and mobility poverty exists already since a long time.

The social compensation can take the form of direct income support – a climate cheque, if you like.

But preferably,

it should take the form of investment in energy efficiency, through building renovation

or zero emission mobility for example.

Our impact studies show

that the most cost-efficient and socially fair manner to achieve carbon reduction

is to go for a policy mix of regulation and carbon pricing.

We are convinced that,

international carbon markets can deliver on our Paris agreement goals.

In our view, all carbon market instruments need to apply:

  • robust greenhouse gas accounting rules that avoid double counting; and
  • ambitious allocation methodologies that are consistent with a clear pathway to net zero emissions.

These requirements are at the core of our work on the Paris rulebook here in Glasgow.

COP26 is the right opportunity to advance discussions and agree on that rulebook.  

I know discussions are difficult.

We continue to work bilaterally with partner countries to develop emission trading systems or other carbon pricing mechanisms.

We appreciate the IMF’s work on carbon pricing.

We are in favour of IMF’s proposal to establish a global carbon price floor,

as long as it does not prevent front-runners to move more quickly.

We will eagerly participate in the technical work at the G20.

In Europe, we are assuming a role of frontrunner to achieve decarbonisation.

However, it is important that our domestic efforts are not undermined by the risk of carbon leakage.

That’s why our plan for 2030 includes a carbon border adjustment mechanism.

It will initially apply to a limited number of traded products that represent a high risk of carbon leakage,

namely cement, iron, steel, aluminium, fertilisers and electricity. 

We will take our time to introduce this mechanism.

It will test run for 3 years before it starts biting.

And it will build up gradually.

We want to introduce the mechanism in dialogue with our trading partners.

We see this carbon border adjustment mechanism as a climate policy tool.

The best mechanism, in my view,

would be one that is not applied

because all our trading partners would also price carbon.

The OECD initiative on an equivalent carbon price is worth discussing.

In short,

the EU is more than ready to engage with all international partners and institutions to come to a global framework for carbon pricing.

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