What is a European Citizens’ initiative (ECI)?

Subject-matter

The proposed citizens' initiative ‘A price for carbon to fight climate change’ aims to encourage the shift from fossil fuels to renewable sources through:

• Introduction of a minimum price for carbon, from 50€ per CO₂ tonne in 2020, increasing till 100€ per CO₂ tonne in 2025;

• Abolishment of the free allowance system for EU polluters;

• Introduction of a border adjustment mechanism for non-EU imports;

• Use of the higher revenues from carbon pricing to incentivize European policies on renewable sources, energy saving and to reduce taxes on low incomes.

CO₂ emissions in the EU are currently managed by the ETS (Emission Trading Scheme); this is a “cap and trade” system, where polluters must purchase or trade certificates prior to operate. Certificates are issued based on emission limits for each sector. Weaknesses of such system are

(a) the high number of exceptions granted to several sectors and small/medium companies: only 55% of CO₂ emissions are covered by the system;

(b) it does not cover goods produced outside the EU and imported into the EU;

(c) resources gathered from such mechanism are not going back to the economy and are not used for environmental policies. In order to reach the target of being carbon neutral by 2050 we must set more ambitious targets and re-think the ETS system.

Since a quantitative control mechanism cannot work unless all emissions are captured, our ECI proposes a market mechanism, by introducing a minimum price on CO₂ emission and abolishing the free allowance system.

Furthermore, we propose a border adjustment mechanism, in order to avoid delocalization and to maintain the same level of competitiveness within the EU. A non-EU producer that wants to import goods into the EU, must be subjected to the same minimum carbon price.

Such market mechanism will incentivize producers to a shift towards renewable energy, and will provoke effects not only in the EU but also outside, since non-EU producers that want to import goods into the EU would be incentivized to use renewable sources as well.

Several studies have shown that such model would be compatible with WTO rules. One of the most interesting is the paper by Professor Alberto Majocchi (University of Pavia): “Carbon Pricing and border tax adjustments: the compatibility with WTO Rules”.

Additional revenues coming from carbon pricing, shall return into the economy according to our ECI by:

(a) allocating funds to EU policies that will support and facilitate the transition to renewable sources;

(b) reducing taxes on lower incomes, that will be the most affected from an increase in energy costs.

Such a maneuver would result in a correction of the market mechanism to encourage renewables energy and to reduce inequality.