The European Union has published a new review of the carbon emissions trading system (ETS) with the goal of achieving climate targets by 2040. This review not only serves as a tool for reducing greenhouse gas emissions but also aims to transform the ETS into an "engine of innovation and investment."
Challenges of Investment in Clean Fuels
The aviation and maritime sectors are recognized as two key areas for generating revenue from the ETS system, but the current proposed framework for supporting investment in clean fuels in these areas is insufficient. The ETS review provides an opportunity to create suitable tools to reduce risk and increase the production and use of electric fuels.
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Initial investment for developing the domestic electric fuel value chain will contribute to Europe's geographical independence and the EU's industrial position in the global competition for clean technologies. RFNBO fuels (renewable electric fuels) are essential as scalable fuels to achieve the goals under the FuelEU Maritime and ReFuelEU Aviation programs.
Key Proposals for Improving the ETS System
A number of proposals have been made to improve and facilitate investment in electric fuels as follows:
- Utilization of National ETS Revenues: Allocating 50 percent of national ETS revenues to support carbon reduction in priority sectors, including the production and use of marine and aviation electric fuels.
- Inclusion of Aviation and Maritime Sectors in the ETS Budget: These sectors should be included in the scope of the ETS investment program, the industrial carbon reduction bank, and the modernization fund to support electric fuels.
- Establishment of an Electric Fuel Financing Fund: Channeling ETS revenues and other financial resources to finance a market intermediary for electric fuels by 2028.
- Implementation of Market Creation Schemes such as Dual Auctions: These tools are essential for unlocking final investment decisions and scaling emerging electric fuel markets in Europe.
- Improvement of SAF and SMAP Permit Designs: Although these market-based schemes cannot replace the structural performance and risk reduction of dual auctions, their design should be improved to maximize support for electric fuels.
The development of these plans and the proper use of ETS revenues can, in turn, strengthen Europe's position in the production of clean fuels and help achieve environmental goals.
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