Germany misses climate targets...

... for those areas that are not part of the European Emissions Trading System

Good Morning from Germany,

My country would like to be a pioneer in climate policy.

But the reality is a bit different.

According to preliminary estimates, published by Agora Energiewende, a think tank supporting the Energiewende, Germany missed its carbon dioxide (CO2) emissions target in 2022 and thus the third time in a row.

Accordingly, the emission of greenhouse gases stagnated in 2022 at 761 million tons of CO2.

Germany would have saved 39 per cent of emissions compared to 1990 – but the savings target for 2020 was already 40 per cent.

Unsurprisingly, there is a gap in areas not part of the European Emissions Trading System (EU ETS), namely transport and buildings.

The EU ETS is a cap-and-trade mechanism. In such a mechanism, the cap is the firm limit on CO2 emissions allowed to transmit, with the cap getting stricter over time. The trade part is a market for companies to buy and sell allowances that let them emit only a certain amount, as supply and demand set the price (current price per ton CO2: 81.50 euros).

This shows again that it was a mistake not to include transport and buildings when the EU ETS was launched in 2005 (the error has been recognized, and the EU wants to fix it).

In 2021, Germany introduced a national system (nEHS) for the building and transport sectors, i.e. for those not covered by European emissions trading (EU ETS).

However, it did not introduce a quantity cap but a price cap. The price per ton of CO2 is currently set at 35 euros per ton (2024: 45 euros, 2025: 55 euros).

The problem with government-fixed prices: the quantity of CO2 emissions is much more difficult to control.

That differs from the EU ETS, where a quantity cap defines and limits CO2 emissions.

So how will the current year run?

It is conceivable that the areas of transport and buildings will also miss their targets in the next few years since the new EU ETS (it will be called EU ETS II) for fuel for road transport and buildings will be established only by 2027.

Have a nice day (with little CO2 emissions),

The Strolling Economist

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