The polluter must pay - in a fair way

Pricing carbon is an indispensable measure in the policy mix to reduce CO2 emissions. 

The Directive (EU) 2023/959 of the European Parliament and of the Council of 10 May 2023 which, among others, creates a carbon market for road transport and buildings (ETS2) is an important step in this direction. 

However, there are several pitfalls which, if not tackled, might overall even increase CO2 emissions and other environmental damages. 

Pollute

As a result of ETS2, transport fuel prices will gradually increase. However, since fuel taxes vary widely between EU member states, higher fuel prices will tempt vehicle owners, even more than today, to refuel in member states where fuel is cheapest. 

Fuel tourism will certainly hit member states bordering non-EU countries severely, since the latter fall outside the scope of ETS2. 

The recent example of Hungary might serve as an admonition. Namely, in November 2021, the Hungarian government introduced a price cap on petrol and diesel which lasted for a year. 

This measure induced many serious problems, including a surge in fuel tourism and fuel smuggling. Some regions near the border particularly suffered from increased road traffic. 

Furthermore, even the usual transborder traffic causes serious disadvantages: for example, if cars and trucks fill up with cheap fuel in Ukraine or Serbia, and then enter the EU, they use the infrastructure of EU countries and pollute their environment but do not contribute to financing the maintenance of this infrastructure and pay nothing to compensate for the environmental damage. 

Toll

This situation is particularly pronounced for trucks: if a large lorry fills its tank fully in Serbia, it can drive with this fuel as far as Portugal. 

However, the above-mentioned directive also provides a useful leeway for member states: they can practically avoid being included in the ETS2 if they introduce a carbon tax of a certain magnitude. 

Naturally, just putting a tax on fuels directly would lead to the same undesirable results as the implementation of ETS2. Therefore, the carbon tax should be levied in the framework of a distance-based electronic toll. 

This would be easy to accomplish. Several European countries have already implemented distance and pollution based road tolls for trucks on many of their roads, and the revised EU directive on vehicle charging makes it mandatory for them to vary these tolls in accordance with the CO2 emission of the vehicle from 2024.

Technically and financially, it would not pose any problem to to extend such a toll system to all roads and all motor vehicles.

Target

Moreover, the official fuel consumption of each motor vehicle is known, so the number of kilometres travelled should be multiplied by this number and a constant expressing the CO2 emission produced by each litre of petrol and diesel burnt. 

The revenues from the increased toll can and should be used to compensate households. Such a reform would be advantageous from environmental, economic and social aspects. 

Such a reform could be implemented in a way that would financially benefit 80 per cent of the households in Hungary, for example, according to calculations by the Clean Air Action Group.

It can be rightly argued that the fuel consumption of each vehicle differs from the official data since it depends on a number of factors: the driving style of the individual, the road used, the topography, the weather, the technical condition of the vehicle, etc. 

However, all this is irrelevant as far as the total CO2 emission reduction of the given country is concerned. Namely, if the reduction target in any year is not achieved, then the government can adjust the tax accordingly.

Volatility

Although the electronic toll is not completely fair in terms of CO2 emissions, it can avoid the much greater unfairness that could occur if ETS2 were applied. Moreover, some of the unfairness can be mitigated by appropriate fine-tuning of the toll. 

The toll can vary according to the road used: for example, a higher toll in the cities than in the countryside which would be fairer also from environmental and social aspects. 

It could also be differentiated according to other parameters - European emission standard, axle weight - of the vehicle besides the CO2 emissions. 

Another advantage would be that changes in the level of the toll would be much more predictable than the allowance prices in the case of ETS2. 

As experience has shown, the high price volatility of the current EU ETS has made proper planning difficult for many businesses.

Undesired

Extending the ETS to the energy use of buildings might have even more tragic consequences. Namely, it would incentivise the burning of biomass, mainly wood, which is harmful to the climate and our health. 

As increased demand drives up prices, illegal cutting of trees, which has been already occurring, will certainly surge. 

Even worse, the cases of illegal residential heating will also multiply. The burning of plastic, baled clothes, treated wood and other waste in households has already been extremely widespread in Eastern European and some Southern European countries.

This is now one of the main causes of illnesses and deaths caused by air pollution. It is also a major contributor to climate change, as household waste burning emits up to 40 per cent more black carbon, an important climate pollutant, than wood burning per unit of mass.

Appropriate measures should therefore be implemented already now to substantially mitigate the undesired effects of including buildings in the ETS2. 

Implemented

There should be wide-scale awareness-raising campaigns to inform the public about the harmful effects of burning wood and waste. 

There also most be relatively cheap and quickly implementable methods to reduce household energy use: at least a sum equalling 0.1 per cent of the GDP should be allocated to awareness raising annually in the Central and Eastern European countries. 

Monetary support must be made available for vulnerable households, such as the Social Climate Fund established by the EU. Investments into making buildings much more energy efficient must be greatly increased. The authorities controlling illegal burning and illegal wood-cutting must be substantially strengthened. 

If all the measures proposed above are implemented, ETS2 will certainly achieve the objective for which it was designed.

This Author

András Lukács is president of the Hungarian environmental NGO Clean Air Action Group.