The EU’s Emissions Trading System 2 (ETS-2) could be a serious obstacle for the rail freight industry. It would be an additional financial burden but also hamper decarbonisation in transportation as a reverse modal shift could be “imminent”.
The EU’s new emissions trading system, ETS-2, could be a serious burden on the rail freight sector. According to Tomáš Tóth, chairman of the Board of Directors of ČD Cargo, the system could cause a reverse modal shift from rail to road.
ETS-2 would introduce an emissions trading system in which companies purchase emission allowances from 2027 onwards. Such a market mechanism is supposed to nudge companies to reduce their emissions and make environmentally-friendly alternatives more financially attractive.
While the rail sector is not mandatorily included in the ETS-2 system, member states can decide to opt-in particular sectors. In the Netherlands, for example, the government does not exclude that option, saying it seeks to apply ETS-2 as broadly as possible.
Lacking technology for non-electrified lines
Tóth explains that, in Czechia, there are no electrified mainlines that are used by freight that would accommodate electric freight locomotives. All freight currently needs to be carried by diesel locomotives. Moreover, the technology for electric freight traction without overhead electricity lines simply is not there yet. “Battery and hydrogen locomotives are only available as prototypes in the form of light shunting locomotives. The technologies are not yet elaborated to such a degree that they could substitute existing diesel locomotives.”
“The introduction of ETS-2 in railway transport would, therefore, only make it more expensive. Without the existence of adequate mainline locomotives of independent traction that will be able to use alternative propulsion, any motivating factor of emission allowances disappears”, Tóth says.
Competitiveness versus road
In the end, the problem with applying ETS-2 to rail is the age-old problem of competitiveness vis-à-vis road transportation. ETS-2 will make rail transportation more expensive and likely cause more freight to find its way onto the road.
“Few people realise that freight railway transport is already burdened with emission allowances under ETS-1. We thus pay these allowances in the prices of electric energy, and our road competitors pay no similar fee until 2027”, Tóth explains. “Already now, the principal reason for the absence of a modal shift in the Czech Republic is the different price between rail and road transports.”
What should rail do?
Rail should pursue exemptions from ETS-2 where member states are likely to apply the system to rail, says Tóth. “Europe is talking about transport decarbonisation, necessary energy savings, modal shift, et cetera, and it will bring an urgent change of the transport mix”, he says.
“In the market economy, however, the decisive factor is the price of the service provided, and here, we are already unable to compete with the road in many cases. With the ETS-2, it would already be almost impossible. More likely, a reverse modal shift would be imminent”, Tóth adds.
Moreover, as it is up to the member states to decide on the application of ETS-2 to rail, Tóth expresses the fear that member states could take advantage of the situation. In some countries, rail companies could be advantaged over their neighbouring competitors.
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