Think tank: Parts of EU quota system risk slowing climate transition

The European Union's proposed reform of its CO2 quota system (ETS) has drawn mixed reactions, with a Danish green think tank, Concito, expressing significant concerns. Martin Birk Rasmussen, a senior analyst at Concito, described the reform as a "bouquet of flowers and thistles," indicating both positive and negative elements.

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Our benchmark is that the quota system should be a kind of GPS for all the green investments needed to achieve our climate goals.

Concito's primary concern is that the reform, intended to bolster the green transition and competitiveness, might inadvertently slow its pace. The proposal includes issuing more CO2 quotas, including free ones for industry. Rasmussen warns that an oversupply of quotas could diminish companies' motivation to invest in green initiatives.

Furthermore, the plan to allow climate compensation projects outside the EU is a point of contention. Rasmussen argues that this could shift climate efforts and investments away from Europe, potentially to areas where the climate effects of projects are uncertain or costly. The EU Commission, however, states the reform aims to promote both green transition and competitiveness.

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And seen in that light, there are both flowers and thistles.

The proposal is now set for negotiation between EU member states and the European Parliament, with a goal of reaching an agreement by the first quarter of 2027. The debate highlights the complex balance the EU faces between environmental goals and economic considerations.

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The EU Commission proposes, among other things, to ease some of the reduction pressure in the system based on the idea of using climate compensation abroad.