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Carbon Pricing

EU Has Right To Pass Carbon Price On To Oil Majors — Legal Analysis

For a fair and just environmental transition, the EU should pass on part of the carbon price for cars and homes to fuel suppliers rather than European households.

The EU can legally require fuel suppliers to absorb part of the EU’s forthcoming carbon levy for buildings and road transport instead of passing the burden entirely onto consumers, a legal analysis commissioned by Transport & Environment (T&E) finds. If the climate transition has any hope of working, the EU should ensure that big polluters — not the small households — pay the bulk of the costs, says T&E.

As part of its Fit for 55 proposals, the European Commission has proposed including the road transport and buildings sectors into the bloc’s carbon market from 2026 (known as the Emissions Trading System “ETS2”). Fuel suppliers like Total and Shell would need to buy pollution permits for each litre of fuel they put on the market. As the market is currently designed, they could then pass this cost on entirely to end-consumers. This could disproportionately impact poorer citizens driving their cars or heating their homes.

Carbon pricing for road transport and buildings is necessary to ensure the EU meets its 2030 climate targets, as it will reduce the demand for fossil fuels and private cars¹. But the burden shouldn’t only fall upon the consumer.

Sofie Defour, climate manager at T&E, said: “Ordinary people are not causing the largest chunk of emissions, yet they are being asked to pay. Oil majors make billions in profit each year. They cause environmental disasters of immeasurable scale whilst paying almost no taxes. It is high time for oil majors to pay their fair share and absorb part of the EU’s carbon price.”

The legal analysis commissioned by T&E considers whether fuel suppliers can indeed be required to absorb part of the ETS2 cost, rather than passing it on entirely to EU citizens. The analysis finds several promising pathways, including one that would limit the amount that fuel suppliers can pass on to consumers. Anything above that limit would be covered by the suppliers, in the form of a penalty paid to the Social Climate Fund (SCF), designed to support vulnerable households who might not otherwise be able to move their transport and heating consumption away from fossil fuels.

“If the climate transition has any hope of working, we need to make sure the big polluters, not the small households, pay the costs. It’s important to set a clear limit of how much consumers ought to pay for their carbon, and see that the rest is covered by the giants. What will constitute peanuts for the oil majors could help vulnerable households to transition to clean transport and heating,” explained Sofie Defour.

This most recent study shows that there is room for policymakers to improve the European Commission’s Fit for 55 proposal, and include the recommendations of the legal analysis into the scope of the ETS2.

¹ Carbon pricing must be used to complement other climate regulations, such as car CO2 standards, for the bloc to meet its climate targets. While car CO2 standards have ensured carmakers ramped up (and therefore made affordable) electric cars, the ETS’s CO2 price will help to further reduce demand for fossil fuels and cars.

Originally published on Transport & Environment.

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