'Climate policy must survive, because we want to survive in Europe,' EU Commission says

The European Union's worsening exposure to extreme weather and imported fossil fuels makes decarbonisation as much a matter of economic and security policy as climate policy, a senior European Commission official said.

Russia’s war against Ukraine and the disruption around the Strait of Hormuz have raised successive warnings about Europe’s dependence on imported oil and gas, Jan Dusik, director general at the Commission's climate department, said on the sidelines of the think tank Bruegel Annual Meetings on Wednesday.

“Climate policy must survive, because we want to survive in Europe,” Dusik said, arguing that abandoning or weakening the agenda would ignore its links to energy security, resilience and affordability.

The EU's premise is faster electrification of its economy and the development of domestic energy sources to reduce its vulnerability to volatile fossil-fuel markets, Dusik said, which have raised energy bills and are threatening the bloc's industrial competitiveness.

At a time when climate policy is being contested as too onerous for industry competitiveness vis-a-vis China and the United States, the Commission is rolling out its next climate measures in stages, with the end goal of reaching net-neutrality by 2050, even if many critics argue the climate targets are becoming unrealistic and can become counterproductive if the market stops believing in it.

Pierre Wunsh, the governor of the National Bank of Belgium, did not mince his words when discussing Europe’s credibility test over its 2050 net-zero target.

"Most people will tell you we're not going to be in net zero in 2050. That's what I hear. And so it creates some cognitive dissonance, because by pretending we are going there, but having a lot of people believing we're not going there, you lose the credibility of the instruments,” Wunsh told the Bruegel audience on Wednesday.

But the EU executive remains focused on pursuing climate neutrality. The first step came in July with the proposed review of the EU carbon market, the Emissions Trading System (ETS).

Next month, the Commission plans to present a climate resilience framework to help Europe better cope with heatwaves, floods and other climate impacts. By the end of 2026, it plans to unveil the rest of its post-2030 climate package, setting out how the EU intends to deliver its 2040 emissions-cutting target.

ETS: defending the credibility of the 2040 pathway

On the ETS, Dusik rejected suggestions that the EU executive is effectively “playing with numbers” by allowing flexibilities, existing carbon allowances and future carbon removals while simultaneously targeting a 90% reduction in net greenhouse-gas emissions by 2040.

The Czech EU politician said the ETS and the wider post-2030 climate package were designed as a single system and will ultimately have to add up to the EU’s overall carbon budget.

"There are moments where we look at how the legislation is implemented, and we are doing adjustments as we have done for the market stability reserve, as we are doing for the benchmarks in the ETS, which does not jeopardise that total carbon budget that we should have in 2040 or 2050. It needs to add up and this is designed to add up," Dusik said.

The key mechanism, Dusík suggested, will increasingly be price rather than simply the quantity of carbon allowances. As the number of allowances declines through the 2030s, prices are expected to rise, creating a stronger financial incentive for companies to invest in cutting emissions rather than continue paying for carbon.

The Commission is also preparing to introduce additional flexibility through carbon removals and international carbon credits.

But the official stressed that these should complement, rather than replace, European investment.

International credits could help lower the overall cost of meeting targets, but Brussels does not want a system in which European companies simply buy reductions abroad instead of investing in clean technologies at home.

"This needs to be done in a very smart way, knowing what the amount of credit is available, how it complements rather than replaces domestic investments. Because after all, we are also interested in investing in Europe, rather than purchasing investments abroad. So it needs to be the right mix," the Commission official said.

Climate adaptation is becoming unavoidable

The official also acknowledged that the EU is increasingly having to deal with climate impacts that cannot be prevented by mitigation alone.

Following a summer marked by extreme weather, the Commission plans to put forward a climate resilience framework, arguing that Europe needs to prepare for a world in which climate impacts become increasingly severe.

Even if the world fails to stay within the Paris Agreement's 1.5°C goal, the official argued, every fraction of additional warming still matters because it translates into higher economic and social costs.

“This doesn't mean that we will give up on the Paris targets. It means that we have to recognise that the challenge is going beyond being able to stay under the one and half degree target," Dusik said.

"At the same time, we know that every fraction of a degree is a massive impact, a massive cost for the whole society, and the longer and the further we get into the overshoot, the more of the problem it will be.”

ETS revenues: Brussels wants more money going back into industry

One of the sharper criticisms focused on how governments use the revenues generated by the ETS. The Commission's analysis, according to the EU official, found that only around 5% of ETS revenues are actually being returned to industry for decarbonisation.

Since its inception in 2005, the ETS was not supposed to function simply as a source of government revenue. With a growing climate finance gap, Brussels wants more of the money generated by carbon pricing to finance the transition itself, including hydrogen, batteries, carbon capture and storage and other industrial technologies.

The proposed 'ETS investment booster', the industrial decarbonisation bank and the Innovation Fund are intended to turn carbon pricing into an investment mechanism rather than simply another cost for companies, the EU official said.