Russia’s war of aggression against Ukraine is putting an additional strain on the already tense international energy markets. Direct consequences are record-high energy prices at petrol pumps and consumers who can no longer afford heating and electricity bills. Alternative solutions are already being sought out and found. Electricity producers are increasingly switching to coal to generate electricity rather than gas. Despite the sharp rise in CO2 prices, this is currently cheaper overall. This «gas-to-coal switching» produces around 2.5 times as much in CO2 emissions and therefore comes with a bigger climate footprint.
No way around CO2 pricing
Many Western governments are already drawing the necessary conclusions and calling for the fastest possible expansion of renewable energy sources and for improvements in energy efficiency. In addition to the direct promotion of renewable energies, states' toolboxes also include carbon pricing, i.e. the pricing of carbon dioxide (CO2).
Although CO2 pricing has increased sharply in recent years, it is still the exception rather than the rule. Currently, direct taxation and the emissions trading system (ETS) are usually used to price greenhouse gases. The ETS of the European Union (EU) operates according to the cap-and-trade principle. Under this system, the regulator sets a precisely defined cap for CO2 emissions. This cap is lowered over time so that overall emissions decrease. The greenhouse gas emitters covered by the scheme purchase or receive CO2 certificates which they can use to trade with each other as required.
California and European Union leading the way
In 2021, a total of 16% of global greenhouse gas emissions fell under an ETS, with those regions with an ETS responsible for 54% of global gross domestic product. The chart below shows a selection of regions using ETS.