– When Good Ideas Turn Into Bad Deals
The Bitter Truth About Europe’s Climate Policy
CO₂ pricing was meant to become the cornerstone of a fair climate policy: polluters pay, protectors profit. But between this honorable principle and European reality lies a gap that not only shakes citizens’ trust but also jeopardizes climate targets. In Germany, the government will receive €18.5 billion from CO₂ levies in 2024, while citizens reducing their footprint receive nothing. Spain experiments with regionally varying approaches that create more confusion than clarity. At the EU level, ETS 2 and the Social Climate Fund will provide another €300 billion from 2026, but Germany has already missed the climate social plan submission deadline.
Germany: Modern Indulgences Instead of Climate Protection
Record revenues that reach no one:
Germany leads Europe in CO₂ pricing—but the wrong way. Revenues from the European and national emissions trading reached a new record in 2024 at €18.5 billion. While EU ETS 1 earned €5.5B (down 28% from 2023), the national scheme (nEHS) grew by 21% to €13B.
A CO₂ price of €55/tonne for 2025 means:
• Gasoline: +15.7 cents/liter
• Diesel: +17.3 cents/liter
• Natural gas: +1.32 cents/kWh
• Heating oil: +14.72 cents/liter
The broken promise of the climate dividend:
Despite massive campaigns and years of promises, Germany’s climate dividend never materialized. Consumers could have received €139/person for 2021-23; for 2025, it would have been €300. The new government effectively buried the climate dividend in its coalition deal. Instead of per-capita returns, CO₂ revenues are supposed to “noticeably lower electricity prices”—a shell game that does not offset the regressive nature of the CO₂ tax.
Climate-damaging subsidies in the billions:
While citizens pay for their emissions, the government plans further climate-harmful subsidies of €9 – 15 billion annually – about as much as planned for climate protection investments:
• Energy sector: €5.9 to €9.8B
• Transport: €1.9B
• Commuter deduction: €1.36B
• Energy tax relief: €1.5 to €2B
Traditional subsidies persist:
• Diesel privilege: equivalent to -€70/t CO₂
• Company car privilege: -€690/t CO₂
Spain: Regional Patchwork Without a National Strategy
No comprehensive national CO₂ pricing:
Unlike Germany, Spain lacks a nationwide CO₂ system
Instead, a patchwork of regional approaches exists:
• Catalonia: vehicle CO₂ tax since 2021, €6–60/year based on emissions
• Registration tax: 0–14.75% based on WLTP emissions
• No nationwide fuel or heating CO₂ tax
ETS revenues vanish in investment pots:
Spain receives €3.0–3.5B per year from EU-ETS 1, but these funds go mainly to the national recovery program and industrial subsidies—no lump-sum return to citizens.
Cosmetic transport measures:
Instead of structural reforms, Spain opts for cosmetic measures:
• Fare-free public transport until 2025
• Planned “Abono Único” (€49/month) from 2026—modeled after Germany
Austria: European Leader With Weaknesses
A functioning climate bonus:
Austria shows how CO₂ pricing can work with social compensation:
• CO₂ price: €45/t (2024), €55/t (2025)
• Climate bonus: €145–290/person/year
• Regional differentiation and automatic transfer
End of a success story:
Despite its success, the climate bonus will be scrapped in 2025 for budget reasons. The €1.8B savings are the largest single cut in Austria’s austerity package, ending Europe’s most successful CO₂ dividend.
Switzerland: The Gold Standard of CO₂ Rebates
Proven system, broad acceptance:
• CO₂ levy: 120 CHF/t (~€113)
• 74% of receipts returned per capita—via health insurance: CHF61.80/person (2025)
• Steering effect: building emissions down 34% since 2008
System reform planned:
A reform will raise visibility, as only 12% of the population understands the current rebate mechanism.
EU Level: ETS 2, CBAM, and the Social Climate Fund
ETS 2: €300 billion for Europe
From 2027, EU-ETS 2 will extend to buildings and transport with huge financial volumes:
• Forecast: €300B revenues (2026–32)
• Germany’s share: ~€60B
• Initial price cap: €45/t, then market rates
Social Climate Fund: €86.7B
Aims to support vulnerable households:
• Volume: €86.7B (2026–32)
• Funding: 25% ETS 2 revenues + 25% national co-financing
• Access only with a national climate social plan
Germany misses the deadline:
Germany missed the June 30, 2025, submission deadline. Without a plan, there’s no access to EU funds – a major climate policy failure.
CBAM: Carbon border adjustment mechanism (from 2026)
• Sectors: steel, aluminum, cement, fertilizer, hydrogen, electricity
• Price: linked to EU-ETS 1 (~€70/t)
• Goal: prevent carbon leakage
Systemic Problems With European CO₂ Pricing
• Prices too low for effective steering – studies show real steering effect only above €180–215 per tonne.
• Regressive impact without compensation; low-income households pay proportionately more.
• Industry privileges – 45% of EU ETS 1 certificates free to industry in 2023.
Reform proposals for fair CO₂ pricing
1. European climate money
Full per capita refund of ETS revenues:
• Payment via tax ID or national systems
• Differentiation according to household size
• Transparency through citizen dashboard
2. Minimum price with price corridor
• ETS minimum price: 75 euros/t
• Price cap: 160 euros/t
• Market stabilization reserve for ETS 2 from 2026
3. Abolition of climate-damaging subsidies
Complete elimination of subsidies:
• Diesel privilege
• Company car privilege
• Kerosene tax exemption
• Agricultural diesel reimbursement
4. Earmarking of revenues
50% refund to citizens, 50% investment in:
• Public transport expansion
• Heating networks
• Charging infrastructure
• Energy efficiency
5. Monitoring and transparency
• Annual EU climate finance report
• Tracking of all ETS revenues
• Public database for climate finance
Conclusion: Europe’s Missed Opportunity
CO₂ pricing remains the most powerful instrument of climate policy, but its implementation is disastrous. Germany collects billions without returning them to citizens. Spain clings to regional patchwork. Austria terminates its successful model for budget reasons. Switzerland, outside the EU, leads the way. With ETS 2 and the Social Climate Fund, Europe faces a historic chance to mobilize €300B for fair climate action—yet without reforms, the system risks becoming another costly failure. The time for cosmetic corrections is gone; Europe needs a revolution in CO₂ pricing—transparent, socially just, and ecologically effective.
Francesco Del Orbe is an expert in sustainable financial policy and climate economics. As a “Guardian of the Earth,” he analyzes the interrelationships between environmental policy and social justice.
Author: Francesco del Orbe 🌍
