Carbon pricing has been adopted as a key climate policy measure in an increasing number of jurisdictions. With much of the world moving towards net-zero targets since the entry into force of the Paris Agreement,

China’s announcement that it intends to achieve carbon neutrality by 2060 is a game changer for international climate policy. It has considerable implications for the EU’s climate and industrial policy.China still needs to translate this political promise into concrete goals with verifiable intermediate targets. But its goal of carbon neutrality by 2060 is in some ways a more ambitious long-term climate goal than the EU’s, despite the 10-year difference in target years (and the different greenhouse gases covered).When considering the different growth trajectories, China’s target is undoubtedly more ambitious than that of the EU. China will need to reduce emissions at a far faster pace than the EU has managed so far, both in absolute and relative terms, but given its high savings rate, it can afford the vast investments needed to green its economy. On the road to carbon neutrality, China will become the biggest market for low-carbon technology.Will this be in competition or cooperation with Europe? For the EU, proposals such as the “carbon border adjustment mechanism” may suddenly be an uneasy fit. There may be stiff competition for the development of climate-neutral technology, especially for energy-intensive industries, which are fundamental to the debate about industrial competitiveness and the risk of carbon leakage.

There are few credible scenarios for reaching the EU’s long-term climate policy objectives, such as net-zero by 2050, without the large-scale deployment of CCS technology. Carbon capture and storage technology is a pre-requisite for the decarbonisation of energy-intensive industries, which in the EU are responsible for about a fifth of all greenhouse gas emissions. At the same time, carbon capture technologies have only been tested at smaller scales and are not yet available at scale for the multiple energy-intensive industries that need them. To prepare for larger-scale CCS deployment in the period after 2030, steps should be taken today to address economic as well as political barriers, and thereby support development of key infrastructure and technology. In doing so, policy should focus on improving the investment case for both CCS as well as low-carbon industrial products that carbon capture makes possible. This includes specific financing models that account for the high capital intensity of CCS, regional variation in industrial clusters, infrastructure and storage availability as well as the need to combine both private and public money.Recommendations:Plans for CCS deployment should be developed in parallel with analysis on the expected demand for negative emissions, as well as how to deliver these negative emissions. Imperfect capture rates and bio-energy with CCS (BECCS) use will impact this demand.Policy support should target the improvement of capture rates in major energy-intensive industries so that theoretical potentials can be demonstrated.To support scale-up, initial focus should be on industrial clusters where various sources of CO2 can be combined into larger volumes.EU state aid rules (e.g. environmental state aid guidelines) should facilitate member state spending to support CCS infrastructure development.Political choices should be made as to the market and financing models that will apply to CCS development, both on the capital investment side as well as on the operational financing side.

This policy insight outlines different perspectives on the past performance of the EU Emissions Trading System (ETS) in terms of its allowance price, analyses how the recent reform responded to related challenges , and considers the case for introducing a carbon price floor in the EU ETS. The main part of the paper identifies five myths in the debate about an EU ETS price floor and critically challenges them. It concludes by discussing potential entry points for introducing a carbon price floor in the context of the upcoming EU climate policy process.It builds on the workshop EU ETS Reform: Taking Stock and Examining Carbon Price Floor Options, held at CEPS in Brussels on July 3, 2018. The workshop was cosponsored by CEPS and the AHEAD and Mistra Carbon Exit projects. While the paper draws on insights from workshop discussions, its views are solely those of the authors.Christian Flachsland is head of the working group Governance at MCC Berlin. Michael Pahle is head of the working group Energy Strategies Europe & Germany at the Potsdam Institute for Climate Impact Research (PIK). Dallas Burtraw is Darius Gaskins Senior Fellow at Resources for the Future (RFF). Ottmar Edenhofer is the director of the Mercator Research Institute on Global Commons and Climate Change (MCC). Milan Elkerbout is a Research Fellow at CEPS Energy Climate House. Carolyn Fischer is professor of environmental economics at the Vrije Universiteit Amsterdam (VU), School of Business and Economics, Department of Spatial Economics. Oliver Tietjen is a PhD student at the Potsdam Institute for Climate Impact Research (PIK). Lars Zetterberg is programme director of Mistra Carbon Exit; IVL Swedish Environmental Research Institute.CEPS Policy Insights offer analyses of a wide range of key policy questions facing Europe. As an institution, CEPS takes no position on questions of European policy. Unless otherwise indicated, the views expressed are attributable only to the authors in a personal capacity and not to any institution with which they are associated.