Evaluation and further development of the national Emissions Trading System (nETS)

Can CO₂ pricing in the heat and transport sectors contribute to climate protection? How does the national Emissions Trading System (nETS) affect energy prices and thus private households? Prognos worked on these questions in cooperation with Green Budget Germany (FÖS) and the German Institute for Economic Research (DIW) on behalf of the Federal Environment Agency. The outcome of our evaluation: If the CO₂ price is set high enough and combined with other measures, then fuel emissions trading can have an important role to play in the German climate protection programme.

Core results

• the German Fuel Emissions Trading Act (BEHG) can help to significantly reduce CO₂ emissions in Germany
• high CO₂ prices are decisive for this, accompanied by the active communication of expected future price increases, so that these can be considered in investment decisions
• additional policy measures are necessary to ensure reduction targets (e.g., the promotion of emission-free technologies, efficiency measures, infrastructure expansion)
• CO₂ pricing under the nETS has a regressive effect on income distribution without relief – it therefore, relative to income, places a greater burden on low-income households than higher-income households
• however, the relief scenarios examined, such as the introduction of a climate premium, significantly counteract this distributional effect and, depending on the scenario, make it progressive overall
• high energy prices in 2021/22 were mainly due to increased procurement and product costs
• in the first months of 2022, the CO₂ price only represented an average of around five percent of consumer prices

Our assignment and the background of the study

With the adoption of the Federal Climate Protection Act in December 2019, climate protection was legally established in Germany. The national Emissions Trading Scheme (nETS), introduced in January 2021 on the basis of the Fuel Emissions Trading Act (SESTA), has an important role to play in the areas of heat and transport in order to achieve climate protection targets.

The nETS requires all distributors of fossil fuels such as diesel, gasoline, heating oil, and natural gas (as well as coal from 2024) to acquire CO₂-emission certificates. During the introductory phase up to 2025, the certificates will be sold at fixed prices, and then sold at auctions with a price corridor. The price of certificates is passed on to consumer prices, which thus increases the cost of using fossil energy. This should make renewable energy and climate-friendly technologies more attractive for both industry and consumers.

In order for the nETS to play a decisive role in achieving climate policy objectives and at the same time have a socially responsible effect, a critical analysis of its impact as a climate protection instrument and its social distributional effects is crucial.

On behalf of the Federal Environment Agency, Prognos is therefore developing suitable approaches for assessing the impact of the nETS, with a focus on the areas of transport and buildings. Among other things, the project team will examine the effects on the fleet structure of passenger cars and heavy goods vehicles, the sales and stock developments of heat generators, and the effect on consumer behaviour. Our project partner DIW has additionally conducted an analysis of the social distribution effects and examined various stress options.

The Federal Environment Agency (UBA) and the Federal Ministry for Economic Affairs and Climate Protection (BMWK) will use the results to prepare the SESTA evaluation reports and for the continuing development of the nETS. The November 2022 report is the first of three reports produced by Prognos and its partners in this context.

More information on the national Emissions Trading Scheme can be found on the website of the German Emissions Trading Authority (DEHSt):

Evaluation report (PDF in German)

Information about the nETS (in German)

Project team: Dr Andreas Kemmler, Noha Saad, Alex Auf der Maur, Paurnima Atul Kulkarni, Tim Trachsel, Andreas Brutsche, Karsten Weinert

Last update: 14.12.2022