EU-ETS in Global markets, Decarbonisation of industries.
Can Europe reduce the cost of decarbonisation for its industries while delivering greater emissions reductions worldwide? In this paper, Luca d’Agnese proposes a reform of the European Union’s Emissions Trading System (ETS) that connects these two objectives.
The ETS faces criticism over its impact on energy prices and industrial competitiveness. European manufacturers face costly alternatives to fossil fuels, while permitting delays and electricity-network constraints slow the expansion of renewable energy. Yet abandoning carbon pricing would also carry risks: weaker investment incentives, greater uncertainty and slower progress towards energy autonomy.
The paper explores a different approach: opening the European carbon market to international certificates through negotiated exchange ratios.
Linking markets is not straightforward. Allowing certificates to trade one-for-one between countries with substantially different carbon prices could sharply reduce European prices or increase costs in the supplying market. Either outcome could undermine the arrangement’s economic and political viability.
D’Agnese proposes exchanging certificates at ratios that reflect those price differences. An illustrative six-to-one ratio with China would require certificates representing six tonnes of emissions reductions there to cover one tonne of European emissions. The intention is to moderate price effects while securing additional global reductions.
Delivering this model would require credible verification and careful governance. The paper makes the case for an independent technical body responsible for checking certificate quality and negotiating exchange volumes and conversion ratios. Its role in supporting carbon-market price stability would be analogous to that of the European Central Bank in financial markets.
The proposal reframes the debate around a practical question: how could Europe use international carbon markets to sustain its industrial transition and strengthen its contribution to global emissions reductions?
The study was conducted by:
Luca d'Agnese, Director of Policy, Evaluation, and Advisory at Cassa Depositi e Prestiti
