This blogpost is based on the article ‘Leadership in EU policy-making: a deep dive into the extension of the EU emissions trading system’ by Emma Leenders, Duncan Liefferink and Sandrino Smeets, published in the Journal of European Public Policy on 5 July 2024.
Driving the ETS-2 policy-making process
Three leadership strategies that contributed to the adoption of the ETS-2
In December 2022, the Council and European Parliament reached an agreement on one of the most politically sensitive proposals of the Fit-for-55 package: the creation of an emissions trading system for buildings, road transport and additional sectors (ETS-2).
The policy-making process for the ETS-2 took place in a challenging context. Only two Member States, Denmark and Germany, initially supported the measure. Whereas other Member States and many MEPs were concerned about the ETS-2 increasing energy and fuel prices for households and businesses. Moreover, Member States’ and MEPs’ concerns about spiking energy prices after the Russian invasion of Ukraine could have challenged the ETS-2.
Nevertheless, within one-and-a-half years of the proposal, the Council and Parliament agreed to establish an ETS-2 from 2027 onwards. Three key leadership strategies contributed to the efficiency and relatively ambitious outcome of this decision-making process.
1. Setting an example
Germany acted as an exemplary leader for the ETS-2, adopting a national extension of the EU ETS while lobbying for a similar extension at the EU level. Germany was a driving force behind the ETS-2 proposal.
In December 2019, the German government adopted a national extension of the EU ETS to road transport and buildings. The German government chose a national extension of the EU ETS over a national carbon tax, because it would be easier to upload to the EU level.
At the same time, the German government strongly lobbied for an ETS-2 in Brussels, with the Commission noting that Germany had ‘indicated its interest to have its [national emissions trading] system replaced by an EU-wide system’. The German support for an extension of the ETS, especially with Commission President Von der Leyen and Chancellor Merkel both being members of the CDU, likely contributed to the ETS-2 being included in the political guidelines of the Commission in 2019.
2. Providing the right information
In the first months of 2022, Council negotiations on the ETS-2 were moving forward slowly due to Member States’ concerns about the potential impact of the ETS-2 and questions about the necessity of introducing an ETS-2. A Commission non-paper changed the dynamic of the negotiations.
In March 2022, the Commission’s Directorate General for Climate Action shared a non-paper on the benefits of ETS-2 compared to other options. In the non-paper, the Commission argued that the ETS-2 could contribute around 45% of the emissions reduction needed by 2030 for buildings and road transport. Without an ETS-2, substantial national measures would have to be taken to achieve similar emissions reductions. The Commission also stressed that those citizens who could afford it better would bear higher costs, as they use most fuel and energy.
This non-paper was a turning point in the Council negotiations. After the non-paper, the blocking minority fell. Although many Member States still had concerns about the ETS-2, the negotiations now focussed on how to make the ETS-2 socially and politically acceptable, such as the exact starting date, rather than the question of whether there should be an ETS-2.
3. Engineering a double package approach
The Commission framed the ETS-2 as part of two packages: 1) the Fit-for-55 package, and 2) within the Fit-for-55 package, the ETS-2 was directly linked to the Social Climate Fund (SCF). Throughout the policy-making process, this double package approach contributed to support for the ETS-2.
In the months prior to the presentation of Fit-for-55, the team of Executive Vice-President Timmermans promoted the linkages between proposals. The team organised meetings with all Member States’ Permanent Representations to prepare them for the package and ensure a softer landing once the proposals would officially be presented.
In the Council negotiations, the Commission stressed that if one of the Fit-for-55 proposals were rejected or weakened, Member States would either need to take additional national measures and pay for these measures through their national budgets, or would need to come up with alternative European policy instruments to reach the agreed targets of the European Climate Law.
The rotating Presidencies maintained this package approach. In the June 2022 Environment Council, Agnès Pannier-Runacher, the French Minister for Energy Transition, included the package approach as one of the guiding principles of the negotiations:
“All of these files are very closely interlinked and part of a very balanced package in order to achieve this 55% reduction. […] We cannot withdraw any files from the package. We would like to reach a historic agreement on the five files. Either we do that, or there is no agreement.”
Linking the proposals contributed to reaching an agreement. Member States saw progress on some policy proposals and did not want to block one file and risk a delay of the entire package – and risking a reputation as being not climate ambitious. The package approach also ensured that each Member State got something, such as a temporary exemption. Similarly, in the European Parliament, the overall package was important as most political groups wanted to get some wins before moving on the ETS-2.
The Commission and rotating Presidencies also linked the ETS-2 and the SCF. For instance, the postponement of the ETS-2 by one year in the Council’s General Approach was translated to a smaller SCF by the French Presidency. Conversely, in the trilogues, the Czech Presidency and European Parliament agreed on an extension of the scope of the ETS-2, connected to an increase of the SCF. This link between the ETS-2 and SCF was crucial for finding an agreement in the Council. Those Member States that had strong concerns about ETS-2 argued for a larger SCF, e.g. Poland and Croatia, whereas those Member States that opposed the SCF were in favour of the ETS-2, e.g. Denmark and the Netherlands. As neither camp accepted one policy without the other, but both wanted their favoured policy, both the SCF and ETS-2 were accepted in the end.
Looking ahead
For complex policy challenges like climate change, leadership can be helpful, or even necessary, to advance the policy-making process. The case of the ETS-2 showcases three leadership strategies that helped to drive the policy-making process forwards. With the ongoing Fit-for-55 implementations, calls for a pause in environmental policy, and the EU exploring extending the ETS to agriculture continued leadership will be needed to successfully reach climate neutrality by 2050.
About the author
Emma Leenders is a PhD candidate at Radboud University in Nijmegen, the Netherlands. Her research focuses on policy-making processes for EU climate and energy policy, both at the EU and at the national level. She participated in the GreenDeal-NET research fellowship at Heidelberg University in 2024. Prior to her PhD, she worked as an analyst at RAND Europe. Emma also received a GreenDeal-NET Short-Term Research Fellowship to Heidelberg University in 2023.