4. Policy Design

Carbon pricing through the EU ETS is a cornerstone of EU climate policy. Although the EU ETS allowance prices have increased over the last few years, it remains unclear as to what extent the EU ETS will trigger deep emissions cuts in the industries that are in focus in the Mistra Carbon Exit program. Different pathways towards strengthening the EU ETS have been investigated, as have complementary policies and measures. This chapter discusses the possible future directions for the EU ETS, such as auctioning a larger part of the EU ETS emission allowances that now are allocated for free, a reform of the EU ETS that creates effective carbon pricing incentives combined with Carbon Contracts for Differences, the implementation of an auction reserve price for the EU ETS, and the introduction of flexible performance standards. We also discuss whether carbon border adjustments can accelerate climate action. Public procurement is often seen as an important tool for the building and construction sector. In this chapter, we discuss the requirements, criteria and incentives to promote carbon reduction by means of public procurement. Finally, the possibility to establish a “transition fund” to finance deep emissions cuts in the basic material industry is proposed and discussed.