Climate neutrality : policy scenarios for emissions trading

Achieving climate neutrality by 2050 requires tailored approaches for each sector, with an in-depth assessment of the technical, political, and social feasibility of relying on an emissions trading system (ETS). - To ensure a cohesive decarbonisation strategy, interaction effects between the EU ETS and other climate policies warrant further evaluation. Alignment between the ETS extension to fuel combustion in buildings and transport (ETS2), the Effort Sharing Regulation (ESR), and national policies must be verified. - For ETS2, a 45 €/tCO2 price cap will not be enough to reach desired abatement targets. Additional measures such as technology standards or subsidies will thus be essential. - High costs, monitoring issues, and public opposition suggest alternative policies may be more effective than an ETS to decarbonise the agri-food sector. The adopted strategy should focus on options beyond on-farm commitments, with stakeholders' involvement being key for policy acceptance. - Concerns remain about the integration of industrial carbon dioxide removal (CDR) into the EU ETS. Alternatives to support their development include purchase obligations or public procurement. - To address the risk of mitigation deterrence, separate targets of gross GHG reductions, land-based sequestration and permanent CDR should be defined. Policymakers should explore establishing an independent body to evaluate the balance between emissions reductions and removals for climate neutrality. - Hybrid models combining sectoral and top-down approaches with Computational General Equilibrium (CGE) are essential for reflecting energy system interconnections. Integrating ETS models with energy, land use, and household models will enhance policy insights on ETS policy scenarios. - Knowledge brokering organisations play an increasingly important role in shaping and producing evidence for policy. Strengthening dialogue between modellers and policymakers while promoting transparency in model assumptions and findings is crucial for informed policymaking.