The European Parliament voted in favour of a report to reform the EU Emissions Trading System (ETS) to incentivise industries, including road transport, to cut down on their emissions. The report proposes lower emission caps for road transport to ensure that the sector repays sufficiently for the emitted CO2. The key factor, in this case, is that emission refunds could be used to finance sustainable investments also benefiting rail.

The ETS dates from 2005 but is currently being revised as part of the Fit for 55 package. It works on the ‘cap and trade’ principle, meaning that a cap is set on the total amount of certain greenhouse gases that can be emitted by the installations covered by the system. The cap is reduced over time so that total emissions fall.

Within the cap, installations buy or receive emissions allowances, which they can trade with one another as needed. After each year, an installation must surrender enough allowances to cover its emissions fully; otherwise, heavy fines are imposed. If an installation reduces its emissions, it can keep the spare allowances to cover its future needs or sell them to another installation short of allowances.

Revised ETS

“A separate new emissions trading system for fuel distribution for commercial road transport shall be established on 1 January 2025”, proposed the EU Parliament. MEPs also considered “inserting a price cap of 50 euros so that if the average price of allowances in ETS II exceeds this cap before 1 January 2030, 10 million allowances should be released from the Market Stability Reserve”.

In practice, this means that rail could benefit in two ways. Firstly, through ETS II, rail companies will have a level playing field with road haulage because external costs for CO2 emissions will be balanced. Secondly, MEPs proposed that “10 million allowances should be released from the Market Stability Reserve by 2030”, meaning that rail companies could benefit from acquiring more allowances for them.

“Companies that go for climate neutrality will be better off, while those that continue to pollute without investing will have a hard time. I am particularly happy that the important ETS II is alive and kicking”, said EU Parliament rapporteur Peter Liese.

Using ETS revenues

A few months ago, UIC demanded that when taxing carbon emissions as part of the ETS (Emissions Trading System), the external costs to the planet should weigh more heavily across all modes of transport. Customers of road transport and aviation did not pay for the full amount of carbon emitted when the association raised the issue. However, the situation now seems to be changing.

“It is crucial to invest in railways, build and upgrade resilient infrastructure that complies with the technical requirements and support rail in becoming the backbone of sustainable mobility. It is important to make the best use of revenues from the EU Emissions Trading System (ETS) to finance rail TEN-T investments”, stated CER’s executive director Alberto Mazzola.

He also welcomed the EU Parliament’s decision to move in this direction. “Today’s vote was an important step in the negotiation process, and we look forward to further support from the Member States and the European Commission with regards to investing more in greener modes of transport such as rail”, he said, referring to the Parliament’s proposal to utilise ETS revenues and support other transport modes.

Whether or not the proposal will be implemented is yet to be decided at the plenary Parliamentary session of 6-9 June. If the proposal gets enough votes, the transport sector will be discussing the green transition from a whole new perspective, and the future of rail will look more promising with the EU’s clear support.

Also read:

• Why energy prices are rising, and how rail can be protected

• The revision of the TEN-T Regulation is here, this is on Europe’s agenda

• UIC: Fit for 55 plan the right moment to increase support for rail