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Welcome to Carbon Brief’s China Briefing.

China Briefing handpicks and explains the most important climate and energy stories from China over the past fortnight. Subscribe for free here.

Key developments

China submits WTO complaint against US over EV tax credit

US-CHINA SUBSIDY CONFLICT: On 26 March, China filed a complaint with the World Trade Organisation (WTO) against the US’s “discriminatory” requirements for electric vehicles (EV) subsidies, which, it argues, makes EV containing components made in China, Russia, North Korea and Iran ineligible for tax credits worth $3,750 to $7,500, said the Associated Press. A day later, the US treasury secretary Janet Yellen raised the issue of “overcapacity” of “green technologies” from China, including solar, EV and lithium-ion batteries, during her visit to a solar cell factory in the US, reported the New York Times. The outlet quoted Yellen saying “China’s overcapacity distorts global prices and production patterns and hurts American firms and workers, as well as firms and workers around the world”.

PRESIDENTIAL CONVERSATION: Earlier this week, Chinese president Xi Jinping and US president Joe Biden held a phone conversation. The read-out of the conversation released by the US embassy in China said: “President Biden also raised continued concerns about the PRC’s unfair trade policies and non-market economic practices, which harm American workers and families.” But it said the two leaders “reviewed and encouraged progress on key issues discussed at the Woodside summit…and continuing efforts on climate change.” The briefing from the Chinese Ministry of Foreign Affairs said: “The two sides agreed to stay in communication…carrying out dialogue and cooperation in such areas as counternarcotics, artificial intelligence and climate response.”

CLIMATE DIPLOMACY: Meanwhile, Rick Duke, the deputy US special envoy on climate change, told Reuters that the cooperation between the US and China on methane emissions is “advancing”. He added: “We are, indeed, in the process of propelling that work together.” According to Politico, EU climate envoy Tony Agotha and top climate diplomats from Germany, France, Denmark and the Netherlands will join a trip to Beijing on 8 April to build a “multinational diplomatic track to engage China on climate change”. Separately, the US embassy and Chinese foreign ministry confirmed upcoming visits to China by Yellen on 4-9 April and US secretary of state Antony Blinken “in the coming weeks”.

EV EXPANSION: According to a report in the Hong-Kong based South China Morning Post, anti-subsidy probe and trade restrictions “reduced” the export volume of Chinese EVs to the EU and US by 20% and 42%, respectively, in the first two months of this year, prompting Beijing to look towards other markets. Chinese EV sales in Central Asia have increased 2.3 times during the same period. Meanwhile, an analysis by Transport & Environment showed Chinese EV sales are “on track” to reach 25% of electric car sales in the EU by the end of 2024. The outlet added that the bloc should not aim to shield its carmakers from “meaningful competition”, which would limit affordability of EVs for Europeans.

EU probes Chinese solar firms

SOLAR INVESTIGATION: The Financial Times reported that the EU has opened investigations into the subsidiaries of two Chinese solar manufacturers which may have “been granted foreign subsidies that distort the [EU’s] internal market”. The outlet adds that “the probes reflect a hardening stance in Europe towards cheap Chinese imports, which the EU’s solar industry has blamed for the heavy losses and plant closures of several European solar panel manufacturers”.

SECOND INQUIRY: The South China Morning Post said that this marks the second use of the EU’s foreign subsidies regulation to investigate Chinese firms, which “demonstrates Brussels’ willingness to use the commercial weaponry at its disposal to counter what it sees as unfair competition from Beijing”. In February, the EU investigated a Chinese rail firm, which later withdrew its bid to enter the Bulgarian market, it added.

Renewable installations push coal capacity share down

COAL SHRINKING?: The China Electricity Council, a government-affiliated research thinktank, announced that coal’s share of installed capacity has fallen to 39% of the total mix, as of February 2024, according to industry news outlet BJX News. This was driven by the rapid installation of renewables, the outlet added. China Energy Net reported that, in January and February this year, China installed 36.7 gigawatts (GW) of solar, which is 80% more than last year. Total installed solar capacity stood at 650GW at the end of February, a 56.9% increase, while wind capacity grew 21.3% to 450GW. However, it added, utilisation of both solar and wind shrank slightly in the first two months of the year compared to a year ago.

GRID OVERLOAD: According to Bloomberg, following “record” solar and wind power installations last year, “several regions in China have shown strains handling the new surges of electricity”. Meanwhile, London Stock Exchange Group analyst Chen Xuewan shared on Twitter that the southern provinces of Guangdong, Yunnan and Guizhou may face “power gaps” this year unless power system flexibility is improved.

2024 TARGETS: The National Energy Administration (NEA) released its guidelines for the department’s energy work in 2024, which pledges both to “focus on improving energy security capacity” and to “focus on promoting green and low-carbon energy transformation”. It aims to have non-fossil energy comprise 55% of the energy mix and 18.9% of power consumption. More specifically, wind and solar power will account for more than 17% of power generation by the end of the year. Meanwhile, coal production will be “stabilised and increased”, while oil production will be “stabilised at more than 200m tonnes” and natural gas will “maintain its rapid pace of production”.

China’s climate envoy reinforces role of fossil fuels at Boao

‘CLEAN’ FOSSIL FUELS : At this year’s “Boao forum for Asia” in Hainan – Asia’s version of Davos – China’s climate envoy Liu Zhenmin said that “[China] will still keep our fair share of fossil fuels, but they must be used purely”, adding that this was a “critical” point, Bloomberg reported. Liu also said that the world needs to “massively scale up deployments of solar, wind and hydropower”, but that US trade restrictions increase the cost of clean energy overseas and slow the energy transition, added the outlet. State news agency Xinhua quoted Liu saying at the same event that “humanity’s response to climate change depends on the development of technology” and that developed nations must help meet the financing needs of developing nations.

‘GREEN’ ECONOMY: Zhao Leji, chairman of the standing committee of the National People’s Congress, China’s legislative body, also spoke at Boao. He stated that “[China is] speeding up efforts to promote green and low-carbon economic and social development” and will “strive” to meet its dual carbon goals, according to the Associated Press. CGTN published the full text of Zhao’s speech, in which he also said the country will “cultivate large-scale new growth drivers in green infrastructure, green energy, green transportation and green lifestyle, which is expected to generate investment and consumption markets with a size of 10tn yuan ($1.4tn) every year”. Other notable speakers, the South China Morning Post said, included former central bank governor Zhou Xiaochuan and former deputy trade minister Long Yongtu, who both argued that overcapacity in the “clean-energy sector” will be temporary, as long as global demand for energy transition technologies remains robust.

Spotlight

How climate change could reduce China’s GDP growth

A new study by a group of Chinese scientists, published in Nature, finds that China could significantly constrain future economic growth, due to the impact of climate change on global supply chains.

Carbon Brief invites the paper’s lead authors Prof Guan Dabo and doctoral candidate Sun Yida from Tsinghua University to outline their main findings of the potential impacts of global warming on China’s manufacturing capabilities and economic growth.

In recent years, global supply chains have faced a global pandemic, commercial ships under attack in the Red Sea and a container ship getting wedged in the Suez Canal for six days. The impact of each of these events has rippled across the global economy.

In our new research, published in Nature, we show that climate change poses a similar threat to supply chains around the world, bringing economic losses that will increase exponentially relative to the rise in global temperatures.

Focusing on heat extremes, our research team constructed a “disaster footprint” model to assess the health risks and economic losses associated with heatwaves.

To estimate the impact of extreme heat on global GDP, our model combines projections of future climate, simulations of future population dynamics in response to warming and estimates of heat-induced labour loss on the global economy and supply chains.

Our study is the first to chart “indirect economic losses” from climate change on global supply chains, underscoring the risk to regions that will likely be less affected by warming directly.

The results suggest that, by 2060, China could suffer soaring economic losses amounting to 1.5-4.8% of GDP growth by 2060. Some of its industries, including construction and manufacturing, could lose around 4.6-6.4% of their value.

How could indirect disruptions affect economic growth?

While the direct mortality and productivity loss resulting from heat stress have been extensively studied, previous analysis has yet to account for indirect economic loss.

Indirect economic loss is the reduction in economic output or welfare due to disruptions caused by feedback loops after a shock to the economic system, rather than by a direct impact from a shock. These losses could be due to changes in production, consumption or employment.

For example, crop failures, labour slowdowns and other economic disruptions in one part of the world can affect the supply of raw materials flowing elsewhere. This can cause production stagnation where trading partners cannot access the supplies they need.

These indirect disruptions could cause a projected net economic loss of $3.75-$24.7tn globally by 2060, depending on how quickly climate change is tackled.

We estimate expected economic losses across three scenarios, called “shared socioeconomic pathways” (SSPs), broadly covering futures under very low, intermediate and very high emissions.

The charts below illustrate the potential economic losses as a percentage of GDP China may face under the SSP1-1.9, SSP2-4.5 and SSP5-8.5 scenarios, which project an average global temperature rise of around 1.5C, 2C and 2.5C by mid-century, respectively. Economic losses are split into indirect losses (dark blue), labour losses (blue) and health losses (light blue).

Indirect losses alone could cause a drop of 0.65-2.69% in China's GDP in 2060, depending on the warming scenario.

What is the impact on China?

As the global economy has grown more interconnected, disruptions in one part of the world have knock-on effects elsewhere in the world.

For example, as a manufacturing-heavy country, China faces indirect economic losses of up to 2.7% of total GDP in 2060.

Overall, indirect losses were the most significant component of China’s economic losses, accounting for just over half of total losses.

By 2060 China’s heat-induced economic losses could total about 1.5% of total GDP under 1.5C of global warming, 3% under 2C of warming and 4.9% under 2.5C of warming.

Sectors such as the extractive industries, construction and non-metallic manufacturing – which are some of China’s “key industrial sectors” – could see the highest losses.

These industries are not only located in regions with significant warming, but also import large quantities of upstream primary products from south-east Asia, Africa and South America – regions which are expected to face heightened exposure to production volatility caused by high temperatures.

They are projected to lose about 4.6-6.4% of their “value-added” under the compounded impacts of direct production reductions and indirect spillover shocks.

In addition, under the lowest emissions scenario, 2060 could see an additional 590,000 heatwave deaths annually across the globe, rising to 1.12m additional annual heatwave deaths under the highest scenario. This human toll entails economic costs as well, such as increased healthcare costs and production losses stemming from lost labour.

What next?

This research is an important reminder that preventing every additional degree of climate change is critical.

It should be noted that China’s recent investments in south-east Asia, the Middle East and Africa have shifted towards renewable energy and low-emission mining technology, rather than coal projects and large-scale infrastructure. This will contribute to building climate resilience and creating more stable global supply chains.

In addition, understanding which nations and industries are most vulnerable is crucial for devising effective and targeted adaptation strategies, including establishment and targeted use of the “loss-and-damage funds” agreed at COP27 in 2022.

Watch, read, listen

HUMAN COST: Environmental activist Wang Xiaojun gave a TED talk on his experience growing up in China’s top coal-producing province and the impact that environmental degradation had on his village and family.

SECURITY DILEMMA: The state broadcaster CCTV “exposed” a case of the illegal use of reserved farmland being converted into a solar power plant in Hubei.

FEATURE OR BUG?: An article in World Politics Review argues that excess capacity is a “tolerated feature” of China’s industrial system because it allows China to meet high-level targets, while “local governments clean up the mess [of] bankrupt firms or laid-off workers”.

LITHIUM’S FUTURE: A podcast by the Oxford Institute for Energy Studies discussed the possible path of the lithium market as it matures and grapples with China’s dominance of lithium processing.


575

In gigawatts, the estimated heat pump capacity for buildings (residential and commercial) in China by 2030 under the stated policies scenario (STEPS), according to a report by the International Energy Agency on the future of heat pumps in China.


New science

End-year China wind power installation rush reduces electric system reliability
Energy Economics

Research identified “significant adverse effects” of the rapid installation of wind power on electricity reliability. It found that a faster rate of installation led to lower reliability rates and more power outages. The authors raised the importance of “improvements in grid infrastructure and management in the transition to a low-carbon world”.

Managing fragmented croplands for environmental and economic benefits in China
Nature Food

A new study found that improving the management of croplands could “achieve synergies between food security, economic benefits and environmental protection” without needing to use more land. It revealed that “10% of Chinese croplands have no potential to be consolidated for large-scale farming” and, if the land was instead used to grow animal feed, nitrogen and greenhouse gas emissions could drop by 10% and 101%, respectively.

China Briefing is compiled by Wanyuan Song and Anika Patel. It is edited by Wanyuan Song and Dr Simon Evans. Please send tips and feedback to china@carbonbrief.org

The post China Briefing 4 April: Heat-driven impact on economy; Coal capacity ‘pushed down’; China’s WTO complaint appeared first on Carbon Brief.

China Briefing 4 April: Heat-driven impact on economy; Coal capacity ‘pushed down’; China’s WTO complaint

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Top maritime court rejects bid to halt UN deep-sea mining inquiry

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A United Nations investigation into deep-sea mining firms will continue after the world’s top maritime court rejected their bid to suspend the inquiry triggered by a US-backed push to extract critical minerals from the ocean floor.

In two orders issued on Saturday, the International Tribunal for the Law of the Sea (ITLOS) declined to halt an inquiry launched by the International Seabed Authority (ISA) into whether permit holders, including Tonga Offshore Mining Ltd (TOML) and Nauru Ocean Resources Inc (NORI), have breached their obligations under UN exploration contracts.

The two companies are subsidiaries of Canadian firm The Metals Company (TMC), which earlier this year sought permits from the United States to commercially mine the deep seabed in an area already covered by its UN exploration licences, bypassing the ISA’s regulatory process.

The inquiry was opened after TMC’s move raised questions over whether its subsidiaries had complied with their contractual obligations to the ISA, which regulates mining in international waters under the UN Convention on the Law of the Sea. TOML and NORI sued the ISA last June for allegedly targeting them “in breach of due process” and without “good faith”.

    While allowing the inquiry to proceed, the court ordered the ISA to ensure the companies receive due process. Judges said the regulator must explain the factual and legal basis of its inquiry, clarify the procedures being followed and provide TOML and NORI with a meaningful opportunity to respond.

    The companies seeks to mine an area called the Clarion-Clipperton Zone, which holds vast reserves of critical minerals like nickel, manganese and rare earths but is also home to a little-studied deep ocean ecosystem with thousands of unnamed species.

    In response to the court’s ruling, the ISA welcomed the decision, saying the inquiry “remains in effect” and would continue “with due regard to all applicable legal requirements”.

    Last week, during an annual meeting of its member governments, ISA secretary-general Leticia Carvalho said the resources in the ocean floor are “the common heritage of humankind” and upheld the agency’s role as “more important than ever”.

    TMC also welcomed the court decision in a statement and claimed that judges ruled to “protect the rights of TMC subsidiaries”.

    “Contractors like NORI and TOML, who have together spent hundreds of millions of dollars on the promise of a fair regulatory framework, should be informed of the factual and legal basis of any non-compliance inquiries, understand the procedure being applied, and receive a meaningful opportunity to respond,” said Gerard Barron, CEO of The Metals Company.

    Iridogorgia and bamboo coral pictured around the Johnston Atoll Unit of the Pacific Remote Islands Marine National Monument (Photo: NOAA Office of Ocean Exploration and Research)

    Environmental groups said the ruling allows scrutiny of the companies’ actions to continue.

    Louisa Casson, deep-sea mining campaigner with Greenpeace, said the “entire litigation has been an egregious waste of time and money”, which was part of the industry’s “textbook distraction tactic” meant to delay the consequences of the inquiry.

    “If the inquiry confirms that TMC’s subsidiaries are breaching their contracts, governments must send the strongest possible signal that complicity in unlawful deep sea mining will not be tolerated,” she said.

    While investigation is still ongoing, NORI’s contract is set to expire this week and is up for review. Governments asked the ISA to report back and make “make appropriate recommendations” by the next ISA assembly, its main decision-making body set to take place next week from July 27 to 31.

    The court ordered both the ISA and TMC to submit a report on how they complied with the ruling by August 31, and called on both to “cooperate and refrain from any action that might lead to
    aggravating the dispute”.

    The post Top maritime court rejects bid to halt UN deep-sea mining inquiry appeared first on Climate Home News.

    Top maritime court rejects bid to halt UN deep-sea mining inquiry

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    Q&A: What the EU’s carbon market review means for climate action

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    The European Commission has put forward new plans to cut emissions under the EU carbon market more slowly, from 2031 onwards.

    On 17 July, the commission presented its long-awaited proposal for reform of the EU’s Emissions Trading System (ETS).

    It recommended a number of changes, including giving companies free allowances to cover their emissions for longer than previously planned, conditional on climate investment plans.

    The proposal offers a more business-friendly and “savvy” approach, argued EU climate commissioner Wopke Hoekstra in a press conference.

    But critics believe it could “weaken” the system and put EU climate targets at risk.

    Alongside the proposal, the commission also announced a new target for electricity to make up 46% of energy consumption by 2040, doubling the current rate of 23%.

    This could cut EU spending on imported fossil fuels by €260bn annually, according to the commission.

    In this Q&A, Carbon Brief outlines the details of the new ETS proposal – which is subject to negotiation with member states – and explores what it could mean for climate action.

    What is the EU Emissions Trading System?

    The EU ETS is a carbon market, which puts a price on the greenhouse gas emissions of companies in power generation, industry, aviation and other sectors.

    It covers everything from electricity generation to steel production, as well as flights within the EU and a handful of other European countries.

    Emissions in these sectors have halved since the ETS launched in 2005, according to the European Commission.

    A European parliament briefing describes the system as a “cornerstone” of EU climate policy, covering around 40% of the bloc’s overall emissions.

    It applies to emissions in all 27 EU countries alongside Iceland, Liechtenstein, Norway and electricity generation in Northern Ireland. (The UK established its own ETS after Brexit.)

    The ETS operates as a “cap and trade” system, which puts a limit on the amount of carbon dioxide equivalent (CO2e) that can be emitted within the sectors it covers.

    The “cap” on emissions gradually decreases each year until, eventually, they are expected to reach zero.

    The currency of trade within the system is “allowances”. One allowance is equal to one tonne of CO2-equivalent emissions.

    At present, around 57% of these allowances are bought by companies in auctions. The EU generated around €43bn in revenue from these auctions in 2025.

    The remaining 43% of allowances are given to companies for free, to cover some or all of their emissions.

    This is intended to prevent “carbon leakage” – the idea that companies operating in countries with strict climate policies will relocate to countries with looser rules.

    The amount of free allowances varies by sector, depending on factors including the level of competition with overseas firms that do not face a carbon price.

    What did companies and countries want from the ETS review?

    Countries and companies have been divided on how they wanted the ETS to evolve.

    Some pushed for more ambition to help meet European climate goals. Others called for it to be rolled back, amid rising costs for businesses.

    In March, 10 countries including Italy, Hungary and Poland wrote a letter to the commission calling the ETS an “existential risk” for key industrial sectors, reported Euronews.

    Italy had earlier even called for the system to be suspended outright.

    France and other countries favoured introducing a slower descent towards bringing the emissions cap to zero by 2039.

    Some steel and chemical companies also criticised the cost burden of the ETS.

    Other organisations focused on calls for stability and predictability in the system.

    In recent weeks, Spain, the Netherlands and five other countries called on the commission to “resist gutting” the ETS in its review, said E&E News. They said the ETS should be strengthened to “ensure long-term investment predictability and regulatory stability”.

    Weakening the system could “undermine investment signals and leave Europe more exposed to fossil-fuel shocks”, said a March 2026 briefing from climate thinktank E3G.

    Another E3G briefing said the “risk” is that politicians weaken the system as a short-term economic fix, “undermining one of the EU’s main tools for delivering on its industrial transformation ambitions”.

    Dozens of investment organisations called on EU countries to facilitate a “robust and predictable” ETS. They said that “policy stability is the cheapest investment stimulus available to the EU”.

    In its list of priorities for ETS reform, the NGO Carbon Market Watch said that “now is not the time to backslide” on its aims and terms.

    What is in the new proposal from the European Commission?

    The commission’s proposal outlines a number of changes to the ETS, to bring it in line with the EU’s climate goal to cut emissions to 90% below 1990 levels by 2040.

    The review will “bring relief to industry”, the commission says, while also continuing the ETS’ “essential” role in climate action.

    However, others are more sceptical about the impacts it could have on climate action.

    Below, Carbon Brief details the main aspects of the proposal.

    Free allowances extended

    The European Commission proposes to extend free allowances beyond a previously agreed date.

    Free allocations were due to reduce from this year and be fully removed by 2034.

    However, the commission has proposed to extend this to 2038, on the condition that companies receiving free allowances set out how they will invest in decarbonising their EU operations.

    It proposes that from 2031 onwards, 80% of free allowances in the system would be given to companies that have submitted plans for investment in EU decarbonisation.

    The remaining 20% of free allowances would only be allocated to those that can prove they followed through with planned investments and achieved the emissions reductions they had previously outlined.

    This move is a “step in the right direction”, says Dr Kirsten Scholl, the director for EU affairs at thinktank Epico, but it must not “impose excessive administrative burdens”.

    The EU’s carbon border adjustment mechanism (CBAM) was designed to replace the existing system of free allowances in the ETS.

    It is a tax applied to certain imported goods, based on the amount of CO2 emissions released during their production. It began to be phased in at the start of 2026.

    As a result, free allocation is being gradually phased out from 2026-38.

    However, the commission has proposed that 15% of free allocations due to be removed because of CBAM should be reintroduced from 2028, to “reduce the speed at which CBAM is phased-in and mitigate the remaining carbon leakage risk”.

    The commission says that preventing carbon leakage “remains a crucial element” of the ETS.

    Pushing back the phase-out of free allowances and the full implementation of CBAM “risks squandering the EU’s credibility with investors and trading partners alike”, says Francesco Lombardi Stocchetti, a policy advisor on sustainable economy at the Bellona Foundation, an environmental NGO.

    “Europe cannot lead the clean industrial transition just by moving the goalposts,” he adds in a statement.

    Slowing path to reach zero emissions by a decade

    The commission has proposed to cut emissions in the ETS more slowly from 2031 onwards.

    This could mean new allowances are able to enter the scheme into the 2040s, instead of ending in 2039 as previously planned.

    But the planned changes are still “aligned” with the EU’s 2040 climate target and net-zero requirement by 2050, says the commission.

    The overall ETS cap on emissions was reduced by 1.7% each year up to 2020 and then by 2.2% annually since 2021.

    It is then agreed to drop by 4.3% over 2024-27 and 4.4% from 2028 onwards.

    Maintaining similar rates after 2030 would not be “realistic”, says the commission’s proposal.

    Instead, it suggests that the cap should fall by 3.7% per year over 2031-35 and by just 1.7% annually over 2036-40.

    Simon Evans on Bluesku: The cap on EUETS emissions was due to hit zero by 2039

    This will make the path to zero emissions within the ETS “more gradual and aligned with domestic climate ambition level”, claims the commission.

    But WWF says that the proposal would allow an extra 2bn tonnes of CO2e to be emitted. (See: What could the changes mean for greenhouse gas emissions?)

    Aviation

    The commission has proposed plans to incorporate more airline emissions into the ETS.

    The plan outlines that, from 2029, all flights departing from the European Economic Area (EU, Iceland, Liechtenstein and Norway) and landing in other countries within 5,000km of a point in central Europe should be added to the ETS.

    This distance means that the changes would not apply to flights landing in China or the US. (Both the US and China have opposed the expansion of ETS coverage for flights.)

    The commission also proposes including emissions from private jets and other “business flights” in the ETS.

    It notes that aviation currently accounts for 14% of EU transport emissions. This is expected to skyrocket to around 90% by 2050, given it is more difficult to decarbonise than other modes of transport.

    Some aviation emissions have been included in the ETS since 2012. This included emissions from air travel within the EEA and flights departing from Switzerland and the UK.

    The airline industry did not respond favourably to reports of plans to expand beyond this scope.

    On 8 June, the biggest airlines in Europe urged commission president Ursula von der Leyen not to extend the ETS to cover international flights, saying that it would raise ticket prices.

    A study commissioned by Carbon Market Watch found that the ETS encompassing all flights departing from the EEA, not just those within it, would result in a “very small impact on ticket prices and passenger demand”.

    Auction money

    Under the proposed changes, EU countries would need to funnel half of the money they receive from ETS auctions towards decarbonising sectors covered by the system.

    This would amount to more than €100bn in investment for decarbonisation before 2030, says the commission.

    Around three-quarters of the money generated by the ETS has been allocated to EU countries since 2013, the proposal notes.

    Since 2023, countries have been required to spend all of this money on climate and energy-related activities – at least on paper.

    But the proposal says the “transparency and effectiveness” of this mechanism has been “insufficient”.

    Currently, only around 5% of the ETS money “directly supports industrial decarbonisation in sectors such as steel, chemicals and fertilisers”, it adds.

    Going forward, the proposal says that 50% should be put towards actions aiding clean-energy plans, industrial decarbonisation and improved waste management, as some examples.

    A briefing by thinktank Institut Montaigne noted that the money generated within the system for EU countries to help finance the energy transition should be “at the heart” of ETS discussions, amid budget constraints in many EU countries at the moment.

    CO2 removals

    The commission has proposed integrating permanent carbon removals into the ETS to “give additional flexibility” for certain sectors that struggle to decarbonise. This action was previously agreed within the terms of the EU’s 2040 climate target.

    “Permanent” removals refer to direct air capture with carbon storage and similar measures, rather than temporary removals such as planting trees.

    The removals would be integrated into the system by increasing the allowance cap by an amount equivalent to the number of removals purchased.

    This will set up “additional emission space” for hard-to-abate sectors and also support the “scale-up of the carbon removals industry”, outlines the proposal.

    It also proposes that certain companies, such as shipping and aircraft operators, could compensate for their emissions with their own certified carbon removals.

    These emissions would not be permitted to “go beyond zero”, adds the proposal.

    Sven Harmeling, the head of climate at Climate Action Network (CAN) Europe, says that adding carbon removals “would weaken the ETS impact, undermine the carbon price and create new loopholes for polluters instead of accelerating the transition away from fossil fuels”.

    The proposal “fails to ensure that only high-integrity removal technologies would be considered”, he adds in a statement.

    However, the director of the Potsdam Institute for Climate Impact Research, Prof Ottmar Edenhofer, describes the move as “an important step”, saying:

    “For the first time, it creates a credible and long-term investment framework for carbon-removal technologies in Europe.”

    International credits

    The commission proposes that firms covered by the ETS could make use of “high-integrity” credits bought on the global carbon market from 2036 onwards.

    This relates to the EU’s 2040 climate target, in which up to 5% of the 90% reduction in GHGs can come from global carbon credits.

    Amélie Laurent, a policy advisor in carbon accounting at the Bellona Foundation, says in a statement that these credits “should be in a strategic last resort reserve, not an excuse to avoid doing our homework”.

    Aurora D’Aprile, the EU policy director at the International Emissions Trading Association, notes in a statement:

    “For international credits, early preparation on governance and procurement and greater certainty around a pilot from 2031, will be essential to establish a credible demand signal.”

    Other sectors extended

    The commission has outlined plans to expand the inclusion of the maritime sector in the ETS.

    Maritime accounts for around 4% of the EU’s total emissions. The new proposals for the sector include adding certain small ships of 400-5,000 tonnes to the system.

    The proposal also outlines plans to incorporate more waste incineration into the ETS on a gradual basis from 2031.

    Since 2024, some waste-burning companies have been required to monitor and report their emissions under the ETS. But they did not have to purchase credits.

    Now, the commission proposes introducing the sector on a gradual basis.

    Under the proposals, companies would require allowances for 25% of their emissions in 2031, 50% in 2032, 75% in 2033 and 100% from 2034 onwards.

    Market stability reserve review

    The market stability reserve was added to the ETS in 2019 to help stabilise the flow of allowances.

    It acts like an overflow container holding extra allowances. If the number of allowances in the market falls below a certain threshold, more are brought out from the reserve to balance things out.

    Equally, if the market is flooded with too many allowances, depressing prices, then some are removed and put into the reserve.

    The commission has proposed a reform of the reserve, including changing the upper and lower limits for when allowances are released or removed.

    It wants to reduce the rate at which allowances are withdrawn from auctions when they exceed a certain threshold from 24% to 12% from 2028.

    This means that the permits would be able to stay in the market for longer.

    As shown in the chart below, the price of carbon in the EU increased tenfold over 2017-2021, exceeding €80 (£68) per tonne of CO2.

    Carbon price in the EU ETS over 2012-26, in € per tonne of CO2. Credit: Carbon Brief, based on data from Energy Instrat and EEX
    Carbon price in the EU ETS over 2012-26, in € per tonne of CO2. Credit: Carbon Brief, based on data from Energy Instrat and EEX

    Nevertheless, the commission proposal says the reserve was “effective in mitigating price shocks” on the ETS caused by the Covid-19 pandemic and the surge in energy prices after Russia invaded Ukraine in 2021.

    UK-EU ties

    The EU and UK have agreed in principle to link their carbon markets, but the commission’s proposal says negotiations are still “under progress”.

    It adds that the commission “foresees” future financial contributions from the UK to the EU’s ETS, if a final agreement is reached.

    Many companies have called for the systems to be linked. In June, dozens of carbon-capture organisations and industry groups signed a letter calling for greater certainty on EU-UK links to ensure cross-border carbon-capture and storage projects are covered, for example.

    Switzerland’s ETS has been linked to the EU since 2020.

    What could the changes mean for greenhouse gas emissions?

    The European Commission says the ETS plays a “crucial role” in meeting its climate targets “cost-effectively”.

    The system contributed to a 41% reduction in EU industrial emissions over 2021-23, a decrease of around 800m tonnes of CO2 per year, according to recent analysis from the London School of Economics.

    As highlighted in the chart below, the EU’s overall GHG emissions have dropped by 40% since 1990.

    Greenhouse gas emissions in the EU over 1990-2025 (solid line) and projections out to 2050 (dotted line). The red dots indicate climate targets for 2020, 2030, 2040 and 2050. Credit: Carbon Brief, based on data from the European Environment Agency
    Greenhouse gas emissions in the EU over 1990-2025 (solid line) and projections out to 2050 (dotted line). The red dots indicate climate targets for 2020, 2030, 2040 and 2050. Credit: Carbon Brief, based on data from the European Environment Agency

    Climate commissioner Hoekstra told a press briefing that the proposal is “fully aligned” with the EU’s target to cut GHGs to 90% below 1990 levels by 2040. He called the plan “completely climate-law proof”.

    He also noted that no other EU policy has contributed to reducing emissions on the scale of the ETS, describing it as a “phenomenal asset”.

    But campaigners and experts are concerned that the proposed changes could slow decarbonisation and put the EU’s climate goals at risk.

    Carbon Market Watch says the plans would “severely weaken” the ETS and “risk undermining the achievement of the EU’s 2040 and 2050 climate targets”.

    The proposals “would represent a major setback for EU climate ambition, weakening incentives to cut emissions, extending reliance on fossil fuels and putting the 2040 climate target at risk”, says a statement from WWF.

    WWF estimates that 2bn extra tonnes of CO2 would be emitted if the proposals were approved in the EU.

    Michael Bloss, a German member of the European parliament (MEP) for the European Greens, says the plans would release around 1.4bn tonnes of extra CO2. He describes the proposal as “climate vandalism”.

    Chiara Martinelli, the director of CAN Europe, says:

    “Every extra tonne of CO2 allowed under the ETS makes Europe’s climate challenge harder and more expensive. Weakening the ETS now is a gift to polluters that have prioritised shareholder payouts instead of investing in cleaner production.”

    How was the proposal received?

    The European Commission’s new ETS proposal has been met with a mixed response.

    Scholl from Epico says the proposal has “important flexibilities that can help address competitiveness challenges and provide greater certainty for industrial investment”. But she adds in a statement:

    “Concerns remain about whether the proposed changes preserve the long-term investment signal of the ETS and sufficiently recognise companies that have already committed to ambitious decarbonisation pathways.”

    Edenhofer from the Potsdam Institute for Climate Impact Research adds that the proposals provide “clarity on the contribution that emissions trading is intended to make towards the 2040 climate target”.

    Elisa Giannelli, a programme lead at E3G, says in a statement:

    “Today’s proposal might please some, but it risks increasing both the long-term cost and the time needed to deliver the EU’s growth strategy.”

    Pepe Escrig, a senior researcher, also at E3G, adds that the commission held onto some of the ETS’ “essential foundation”, but “yielded to political pressure to weaken it as a quick fix to broader challenges”.

    This has left the plan “pull[ing] in two directions: strengthening support for industrial investment while weakening parts of the framework meant to drive it”, says Escrig.

    Andrea Spignoli, the policy manager of sustainable markets at Bellona Europa, says the proposal risks “weakening green investments” and putting a larger decarbonisation burden onto other sectors that are not covered by the ETS.

    Greg Van Elsen, a senior industrial policy coordinator at CAN Europe, says in a statement:

    “Free pollution permits were never meant to become a permanent subsidy. Extending them until 2038 rewards delay instead of industrial decarbonisation.”

    Lobby groups also had mixed reactions to different aspects of the proposal.

    The International Air Transport Association says it is “deeply frustrated” with the proposal.

    The organisation’s director general, Willie Walsh, claims the consequences will be “harmful”, “sowing acrimony over extraterritoriality, slowing global decarbonisation and sapping European competitiveness”.

    WindEurope says the proposal risks “slowing decarbonisation and failing to channel billions in ETS revenues to industrial electrification”.

    BusinessEurope’s director general, Markus J Beyrer, says some aspects “raise concerns”. For example, he says the “new conditionalities for free allocations risk increasing bureaucratic complexity and the uncertain role for international carbon credits”.

    What is ‘ETS2’?

    ETS2 is a separate emissions trading system to the main ETS. It is due to take effect in 2028 and is not affected by the current ETS review or resultant proposals.

    It will operate under a similar system as the existing ETS, covering emissions from transport, buildings and smaller industries in other sectors.

    One key difference, however, is that ETS2 will not provide any allowances for free. They will all be auctioned and bought by companies.

    On 15 July, 10 countries, including Italy and Poland, had urged the commission to also reconsider the ETS2 during this review. They were unsuccessful.

    Similar to the original ETS, the commission believes the carbon price under the new ETS2 system will “provide a market incentive for investments in building renovations and low-emissions mobility”.

    However, in June, member-state governments and the European parliament agreed on a number of “safeguards” to support price stability.

    For example, if allowance costs under the ETS2 exceed €45 per tonne of CO2, they agreed that 40m allowances will be put into the system from a reserve to normalise the supply – double the amount previously agreed.

    A European Environment Agency briefing said the ETS2 will “affect fuel prices and mobility costs” and that money will be syphoned into a social climate fund to “support vulnerable households and investments”.

    What happens next?

    EU countries will now negotiate over the terms of the commission’s proposal before it goes to a vote in the European parliament.

    Ireland, which recently took over the six-monthly rotating presidency of the Council of the EU, has stated that it wants the ETS proposals to be signed off by the end of this year.

    A previous document from the council, which represents member-state governments, outlined a target to agree a deal by the first quarter of 2027.

    Clean Energy Wire says that this would be an “unusually ambitious timetable for one of the bloc’s most technically complex pieces of climate legislation”. 

    Politico notes that “months of arguing” is likely to occur.

    The post Q&A: What the EU’s carbon market review means for climate action appeared first on Carbon Brief.

    Q&A: What the EU’s carbon market review means for climate action

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    Flood deaths in West African cities raise fraught issue of slum evictions

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    Scientists have found that the deadly floods across parts of West Africa in recent weeks were made more likely and intense by human-driven climate change, while the expansion of cities into flood-prone areas amplified the devastation, raising the thorny problem of how to better protect poorer urban communities. 

    A report from the World Weather Attribution (WWA) group highlighted how the floods hit some of West Africa’s most densely populated coastal regions, where rapid urbanisation has pushed formal and informal settlements dangerously into floodplains, while converting land into farms has reduced drainage.

    Since May, West African countries including Ghana, Togo, Côte d’Ivoire and Nigeria have experienced weeks of torrential rain and deadly flash floods. Homes have been submerged, thousands of people displaced and over 70 people killed.

    WWA scientists said climate models showed that human-induced climate change increased the intensity of the rainfall, with what was once a rare amount of rain falling in just three days – a downpour that can now be expected every two to four years.

      “The event is not rare already today and therefore the flood risk is certainly not going away but will increase in particular with additional pressures from growing populations and urbanisation,” said Friederike Otto, a professor of climate science at Imperial College London.

      Impact made worse by informal settlements

      On top of climate change, scientists said urbanisation, inadequate drainage, poor waste management and the expansion of informal settlements into floodplains have left millions more people exposed to flooding.

      Informal settlements are neighbourhoods which develop without authorisation from government authorities. More commonly known as slums or shanty towns, they often lack land tenure and services like running water and electricity and tend to be home to poorer communities.

      Across West Africa and much of the developing world, as people have moved from rural areas to cities in search of work, these settlements have expanded into wetlands, flood-retention areas and riverbanks. This has further heightened flood risks across West African cities.

      Kiswendsida Guigma, technical advisor at the Red Cross Red Crescent Climate Centre, said West Africa’s coastal cities are being “squeezed between repeated flooding and rapid urban growth”, pushing infrastructure beyond its limits and making it harder for communities to recover.

      Roussel Teguia, a post-doctoral research fellow at Canada’s Université Laval, said the recent floods have exposed longstanding failures in urban planning across West Africa’s fast-growing coastal cities where much of the region’s economy is concentrated.

      Campaigners oppose Dangote’s planned Kenya refinery over climate and ecological risks

      Teguia said the floods are deadlier due to factors including rapid urbanisation in low-lying areas, lack of affordable housing alternatives and the long-standing marginalisation of poor communities. He also condemned the destruction of wetlands, mangroves and floodplains for roads and buildings when instead these natural bodies “should be treated as critical public safety infrastructure”.

      “These floods should not be understood only as natural disasters,” he said. Residents of informal settlements must stop being treated as the problem, since they are often the first victims of “an urban model that exposes them to risk and then blames them for being exposed”, he added.

      Short-sighted approach to relocation

      Cote d’Ivoire’s capital Abidjan recorded 59 of the deaths, with about 20 dying in the densely-settled slope neighbourhood of Mossikro. Local media reported that authorities had previously relocated residents from this area due to fears about vulnerability to deadly landslides and flooding, but some people had returned to previously evacuated sites and died when the hillside collapsed due to the rain.

      Local authorities have since started demolishing houses in the area, to the anger of many locals who say they were not consulted or warned about the demolitions, which are costing them their properties and livelihoods. “If you destroy this place, where am I supposed to go?” one unnamed resident told Al Jazeera.

      The government says many of the structures were built illegally in flood and landslide-risk zones and it plans to move 3,000 people first and 2,000 more later. Municipal official Yue Hilaire told the TV channel the municipality has been trying to persuade them to leave for a long time. “Frankly we are tired,” he said. “The mayor instructed us to evict them because we don’t want to witness another tragedy every year.”

      Loss and damage fund delays first project approvals as needs dwarf resources

      Guigma said that to avoid people returning, the government should ensure that “where people are relocated they also have relatively good economic opportunities for them to stay”.

      Demolishing poor people’s homes without offering real alternatives is not prevention, Teguia argued, calling on governments to provide safe, serviced and affordable land close to jobs and transport, stop the occupation of wetlands and regulate powerful land owners and users.

      Relocation programmes often fail because they are designed as land-clearing or security operations rather than social processes, he explained.

      Governments must move from reactive crisis management measures to a long-term comprehensive approach to risk, Teguia said. Relocation policies need to be just, fairly compensated, include affected communities and encompass economic and social networks – otherwise they “simply move the vulnerability elsewhere”, he warned.

      Finance gap limits flood response

      The WWA scientists said deadly floods will continue unless governments do more to reduce people’s exposure and vulnerability, calling for investments in safe and affordable housing, improved drainage and sanitation, stronger enforcement of building regulations, more effective early warning systems and greater involvement of at-risk communities in planning.

      A supercharged El Niño is coming – are we ready?

      Joyce Kimutai, research associate in extreme weather and climate change at Imperial College London, said the study is a clear example of “the need for international cooperation on climate justice”, adding that developed countries have a responsibility to help nations like Togo, Cote d’Ivoire and Ghana to adapt to a worsening problem that, as low emitters of greenhouse gas, they did not cause.

      But significant financial support for countries grappling with increasing climate disasters may still be some way off. Earlier this month, the UN’s fledgling Fund for Responding to Loss and Damage (FRLD) postponed approving its first round of projects after requests for support far exceeded the money available.

      One of the roughly 180 submissions the fund received was a Nigerian recovery and resilience project to address flood losses and damage in Lagos which is prone to yearly flooding. 

      Otto of Imperial College London said such situations where the role of climate change is certain “should be the kinds of events where this fund should pay and help, but of course, that would require first money to be in the fund”.

      Ghana and Togo have also identified increasingly frequent flooding as a major climate risk in their national adaptation plans, prioritising investments in drainage, resilient infrastructure, flood management, early warning systems and climate-resilient urban planning.

      Most “zombie credits” locked out of new UN carbon market after China and India snub

      But while these adaptation plans acknowledge that delivering the proposed measures requires more international aid, wealthy nations are likely to have missed their 2025 goal of doubling adaptation finance for developing countries. Funding reached just over $30 billion in 2024, far below the target of $40 billion by 2025.

      The WWA findings underscore the urgent need to speed up support for vulnerable communities who have done little to cause climate change, said UN Climate Change Executive Secretary Simon Stiell, adding that “all climate finance commitments must be delivered in full”.

      The post Flood deaths in West African cities raise fraught issue of slum evictions appeared first on Climate Home News.

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