CAKE at IV COP29 side event

CAKE at IV COP29 side event

On the 18th November 2024 CAKE experts participated on the last event organised by CAKE at COP29 which took place in the Greek Pavilion tittle: “Powering Climate Action: Balancing Ambitious Targets with Effective Mechanisms for Emissions Reduction”.

We invited and were delighted to host:

Kurt Vandenberghe, Director-General, DG Climate Action, European Commission
Gerassimos Thomas, Director-General, DG Taxation and Customs Union
Krzysztof Bolesta, Deputy Minister, Ministerstwo Klimatu i Środowiska, Poland
Simone Borghesi, Director of the Florence School of Regulation – Climate, President of European Association of Environmental and Resource Economists (EAERE)
Robert Jeszke, Director KOBiZE/CAKE, Poland

The discussion, moderated by Maciej Cygler from CAKE, centered on the challenges of developing robust carbon pricing systems and their role in achieving net-zero ambitions. Drawing on insights from the LIFEVIIEW2050 project, he framed the conversation. Mentioning the expected shortage of carbon credits in the EU ETS appeared to be a good starting point for discussing options for the further development of this type of measures. He then went on to ask a series of questions to moderate the interventions of our distinguished speakers.

Kurt Vandenberghe outlined the hurdles of linking emissions trading schemes globally, citing the need for systems to be equivalent in structure and integrity. He reflected on past EU experiences with CERs and emphasized that domestic reductions must remain the priority. Although the idea is theoretically sound, its practical implementation seems unfeasible today. There are too many obstacles to overcome to make it work and be accepted, including not only the economic implications, but most importantly the differences in carbon pricing mechanisms in jurisdictions with such measures. There are only two examples that work – California and Quebec, and the EU ETS and Switzerland. The systems to be coupled should be equivalent in all dimensions, and that is a challenge. However, he highlighted the potential of CBAM and carbon removals in driving global action under Article 6 of the Paris Agreement, while stressing that removals must not replace mitigation efforts.

Gerassimos Thomas underscored the need for predictability in climate policies, crucial for investor confidence. Carbon pricing and CBAM are different sides of the same coin, but at the moment both sides are mainly focused on the most emission and energy intensive sectors, while clean technologies should not feel challenged. Moreover, carbon pricing provide revenues to be invested. If we develop right measures – private sector would engage with investments, technology transfer and capacity building. He advocated for measures that balance carbon pricing and CBAM to ensure they protect clean technologies while incentivizing investments in decarbonization.

Krzysztof Bolesta proposed exploring both “hard” and “soft” linking of ETSs, as well as offset mechanisms, to lower the cost of achieving reductions while fostering international cooperation. He stressed that offsetting could unlock funding and incentivize emission reductions in other jurisdictions.

Simone Borghesi emphasised the inevitable role of removals in achieving ambitious reduction targets in long term, both in the EU and in the world. All the models predicts to include increased role of CDR as the solution – the problem it is not whether, by when and how? Timing would be crucial in this process, however it depends also on social acceptability. As we have a number of different CDR methods, we should carefully consider pros and cons. There is not one good solution. Also integrity issue is important. And finally, removals must not replace mitigation efforts.

Robert Jeszke linked these perspectives to CAKE’s analysis, emphasizing the need for diversity in climate policy tools. He supported removals as essential to the ETS’s future but agreed that linking non-equivalent systems is currently unfeasible. Robert introduced the idea of a European Central Carbon Bank (ECCB) to stabilize the EU ETS, mitigate costs, and support international cooperation under Article 6. Such a bank seems to be a good solution to mitigate costs and price increases resulting from carbon pricing measures, but also to protect mechanisms such as the EU ETS from shocks. Moreover, the bank could help other countries to provide funds, also under Art. 6 of the Paris Agreement. The ETS needs additional flows, which can come from removals and linking the system. However, we should be looking at future solutions, including those that are compatible with global schemes, with Article 6 as a central piece. Today’s most pressing challenges are to reduce emissions, to keep the ETS as the main instrument for reducing emissions, to keep industry in the EU and to save European households.

The event concluded with a shared understanding of the challenges and opportunities in refining carbon pricing mechanisms.