The European Union prepares a plan to contain the cost of electricity and gas. But at the center of the political tug of war there is a little-known mechanism: the ETS.
It is on the confirmation or reform of this system that the decisive game for energy bills is being played. Italy is calling for an urgent review of the mechanism, but it is alone.
What is ETS
The topic of the ETS will be on the table of the European Council on 19 and 20 March in Brussels, also convened to address the impact of the crisis in the Middle East on the energy markets, after the outbreak of the war in Iran and the crisis in the Strait of Hormuz.
The Ets (Emission Trading System) is the European system for trading CO₂ emission quotas. In practice it works like this: a total emissions ceiling is established for strategic sectors such as industry, energy and aviation and the various companies receive or buy quotas that allow them to pollute by emitting a certain quantity of CO₂. If a company pollutes less than allowed, it can sell the excess allowances to other companies. If it exceeds permitted emissions, it must buy extra allowances or pay fines.
The ETS system does not introduce anything extraordinarily innovative: the quota system was borrowed from what has been happening for some time on the geopolitical chessboard with the pollution quotas of the various states. States, or groups of States, also set a total limit on emissions and even in that case there may be quotas or pollution permits.
But polluting quotas are also used by companies: Tesla, for example, systematically sells its pollution quotas to competing companies, raking in billions upon billions.
In our case the difference is this: the European ETS mechanism is an exchange between companies and the ceiling is decided by Brussels. Giving a price to CO2, in European intentions, should incentivize the energy transition.
Because it affects bills
The problem, highlighted above all by Italy, is that this mechanism is directly reflected in the cost of electricity. Thermal power plants, which produce energy from fossil fuels, must purchase emission quotas. This cost is then passed along the supply chain to the final consumers. And the bill grows.
Italy’s position: suspend the ETS
Prime Minister Giorgia Meloni has asked for an urgent suspension of the system for producing electricity from thermal sources, at least until the prices of energy raw materials return to more stable levels.
Environment Minister Gilberto Pichetto Fratin also spoke of a possible “boomerang effect”: a tool created to reduce emissions which, at this stage, risks producing opposite effects, penalizing businesses and consumers.
The European Commission has already announced corrective actions, with President Ursula von der Leyen’s letter opening to making the decarbonisation trajectory “more realistic” by listening to the industry’s concerns. But the idea of dismantling the ETS completely or freezing it is not being considered.
The European Commission is working on a package of measures with the declared aim of reducing the pressure on families and businesses. Among the options under study are greater flexibility on state aid, possible relief on electricity bills and an acceleration on renewables.
