Working group assessing emissions trading in the national road transport sector: Priority should be given to work on an EU-level emissions trading scheme

An assessment memorandum on emissions trading in the national road transport sector prepared by a cross-sectoral working group of the Ministry of Transport and Communications was published on 24 January 2022.

It is the working group's opinion that priority should be given to work on the EU-level emissions trading scheme over a national scheme. Emissions trading in the national road transport sector was assessed to prepare for a scenario in which other measures taken to halve emissions from road transport from the 2005 level by 2030 were insufficient. This work is part of the process of implementing the Roadmap for fossil-free transport. The memorandum is part of the third, conditional phase of the roadmap. If a combination of the measures taken in the first two phases and decisions at EU level prove insufficient, measures could be taken to promote emissions trading in the national road transport sector. The Government has continued to prepare various measures, including emissions trading in road transport, in case other national measures and solutions at EU level together are not sufficient to meet the emissions reduction target.

When the Commission issued its proposal for an EU emissions trading scheme, it was included in the assessment. The working group emphasises the importance of paying close attention to progress made in the negotiations concerning the EU emissions trading scheme. If necessary, decisions should be made on the preparation or introduction of a national emissions trading scheme or other pricing instruments. The memorandum provides a broader knowledge base on emissions trading in road transport and thereby promotes the discussion of the Commission's proposal in Finland.

The memorandum raises a number of issues that need further examination. Views on compensation models were called for. Similarly, more extensive and in-depth impact assessments are needed. If a need for price control should arise before the emissions trading scheme is in place, the existing tax system could be used for fuel price control.

Opinions divided on emissions trading scheme for national road transport

The memorandum was circulated for comments from 8 November to 3 December 2021. Some of the consulted stakeholders considered a national emissions trading scheme necessary while others opposed.

A total of 50 comments were submitted, one of which was a joint statement of 18 business and industry organisations. In their joint statement, business and industry organisations said they saw no need for an emissions trading scheme for the national road transport sector. The same opinion was expressed in ten other comments. On the other hand, several comments stressed that national economic instruments were necessary to achieve a sufficient reduction in emissions.

A large number of comments emphasised the need to allocate resources to work on the EU-level emissions trading scheme for the transport sector. Two contributors considered having a national emissions trading scheme alongside the EU emissions trading scheme a viable option. The European Commission has proposed an emissions trading scheme for road transport that would be introduced in 2026. In many of the comments, taxation was considered a more cost-effective price instrument than emissions trading. National measures must also allow for the possibility that EU emissions trading will be delayed or not implemented at all.

According to the comments, an assessment of a new policy instrument for reducing transport fuel emissions should take into account its compatibility and combined effect with other policy instruments. More detailed impact assessment was also called for.

Compensating consumers for the increase in fuel prices caused by emissions trading was generally considered justified in situations where an increase in fuel prices would unreasonably affect some groups. At the same time, however, it was pointed out that compensation may not significantly interfere with the achievement of emissions trading objectives.

What is emissions trading?

An emissions trading scheme for road transport would create a market for CO2 emissions derived from fuels used in road transport. Emissions trading requires fuel distributors to purchase emission rights (allowances). The amount of required emission reductions affects the price of these rights.

The advantage of emissions trading over other regulatory instruments is that it ensures that the emissions target is reached, as the quantity of emission rights offered for sale can be set to match the emissions cap.

What's next?

An overall assessment of the adequacy of emission reduction measures in the transport sector and in the entire effort sharing sector will be carried out in March 2022 in accordance with the climate policies outlined in the government budget session.

Discussion on the proposal for a new emissions trading scheme covering the fuels used for road transport and building-specific heating will continue in the Working Party on the Environment of the Council of the EU.

Inquiries:

Matleena Kurki-Suutarinen, Senior Ministerial Adviser, chair of the working group, tel. +358 295 342 043, [email protected]

Valtteri Härmälä, Senior Specialist, tel. +358 295 342 039, [email protected]