Keywords

Introduction

The biggest problem facing the EU due to climate change is instability (EEA, 2024). The existing carbon credits system, the EU Emissions Trading System (EU ETS), while successful, has two fundamental flaws: it is not comprehensive enough (European Commission, 2024), and it is not equitable (Ellerman & Joskow, 2008). To maintain pace with competing global players, the EU must address the issue of climate change due to its status as a threat multiplier, which exacerbates current and future vulnerabilities and creates instability (Goodman & Baudu, 2023). All resources are limited, time, money, commitment, etc., therefore interventions must be carefully selected, with strong evidence bases to support those decisions.

The EU’s Fit for 55 package was designed with the aim of reducing Greenhouse gas (GHG) emissions by at least 55% by 2030 (European Council, 2024). The process has guiding proposals that aim to ensure that: (1) the transition is socially fair and just, (2) the competitiveness of the EU is maintained and strengthened, and (3) the EU should be a global leader in the fight against climate change (European Council, 2024). The Emissions Trading System (EU ETS) was introduced to allow cost-effective net-zero reductions (IPCC AR6, 2022), to take place at a balanced and manageable pace, with free allocation to key industries (European Commission, 2024). This was the world's first, and as of writing, remains the world's largest carbon market.

Under COP26 (UNFCCC, 2024, Glasgow), the foundation for an international carbon trading market was laid, allowing countries to exchange carbon credits issued by the United Nations to fulfil GHG reduction commitments as per the Paris Climate Agreement. These credits are aimed at providing a way to offset GHG emissions via projects and initiatives such as deforestation prevention, tree planting, and soil management. Voluntary markets predominantly support carbon offsetting and decarbonisation programmes of traditionally heavy-polluting industries like the fossil fuel, aviation, and technology sectors striving for net-zero emissions.

However, recent investigations into carbon offsetting protection programmes raise concerns with the global carbon market (West et al., 2023). This includes major problems with transparency in carbon accounting, leading to uncertainty of the effectiveness of these programmes (Perissi & Jones, 2022). A global carbon market is an unrealistic mechanism due to the required scale and lack of control opportunities. Regional markets are where success can be obtained, however, revisions are needed to capture their full potential, particularly the EU ETS.

As of November 2023, the EU Council and Parliament have agreed to revise the Directive on Industrial Emissions (IED) and the Industrial Emissions Portal (IEP) (European Council, 2023), which aims to “better protect human health and the environment by reducing emissions from certain industrial installations” including livestock, mining, energy, and aviation by enacting a polluter pays principle through improved emissions reporting (European Council, 2023). This is a necessary and admirable step which equitably balances the damage heavy polluters cause, but it does not go far enough. Additionally, the IED and IEP frameworks are based on Environmental Performance Limit Values (EPLVs), which are only binding for energy resources. Therefore, EPLVs are incomplete because they fail to consider requirements for life and fundamental pillars of society.

The greatest return on investment can be obtained via proactive targeted interventions, developed by redefining a successful transition to a low-carbon future as one based on strong societal sustainability, which includes “both positive and negative impacts of systems, processes, organisations, and activities on people and social life (i.e., health, social equity, human rights, labour rights, practices and decent working conditions, social responsibility, justice, wellbeing, etc.)” (Balaman, 2018, p. 86). This requires understanding that the low-carbon transition needs to go beyond energy considerations and instead requires a more comprehensive understanding of industry sectors outputs and how they impact society.

The key factor in successfully reducing a region’s overall emissions is to account for all industries, not just the heaviest polluters based on scope 1 emissions, which are the direct emissions produced, owned, and controlled by a company; but also scope 2 and 3 emissions, the indirect emissions that come from purchased energy and the wider supply chain. These must be factored into carbon accounting, with a shift away from using economic metrics as primary tools for benchmarking. Free market principles, unfortunately, under the current system, do not act fast or thoroughly enough to achieve the emissions reductions required.

To overcome these challenges, it is crucial to look beyond climate change as a matter of economics and natural science: success requires moving towards comprehensive policy creation. A foundational aspect of this is to enhance collaboration between STEM and SSH research to create continuous multidisciplinary collaboration. Current policymaking models primarily focus on physical and technical datasets, failing to account for the importance of societal factors. Thus, strengthening the synergy between STEM and SSH disciplines is essential for driving comprehensive and effective policy design, which ensures that both technical and societal aspects are considered in decision-making processes.

Our team, two SSH researchers and three STEM researchers set the basis for developing a way to jointly assess physical and societal impacts of industry sectors. The goal of blending these datasets was to allow policymakers to identify sectors and target interventions to support transition pathways. To achieve this, we assessed the available physical and social datasets relevant to the EU and have developed an index that can be used across the EU. The index has been developed via participatory methods and is rooted in quantitative–qualitative methods. This index provides policy makers with defensible actions that are replicable and scalable, demonstrating the viability of proposed policy strategies. Our innovative approach prioritises carbon use efficiency, going beyond a simple reduction in emissions and moving towards maximising overall positive societal outcomes.

This research revealed that existing datasets relating to social factors are not sufficient to create strong, evidence-based policies for carbon emission reductions. Our attempted construction of a societal-benefit index revealed that it is currently not possible to create a comprehensive index due to the few existing social datasets available (2 usable social datasets) compared to the physical (98 physical datasets). The EU would greatly benefit from the gathering of additional social datasets to understand the links between environmental impact, societal benefit, and carbon emission reductions. Although the physical datasets are useful, they lack depth, which can be mitigated through the inclusion of social data.

Our methodology was composed of two parts. Part one was concerned with the creation of an index that portrays trade-offs between physical impacts and social impacts of economic sectors within the EU. To populate the index, we used the EXIOBASE3 database (Stadler et al., 2021), which offers a chronological sequence of Environmentally Extended Multi-Regional Input–Output (EE-MRIO) tables spanning from 1995 to 2022. EE-MRIO tables were used to integrate input–output analysis with environmental data to assess the environmental impacts of economic activities across regions and sectors. This data allowed us to measure environmental impacts and societal benefit added by different economic sectors within the EU and to create a ranking system (see Appendix).

Part two explored potential future datasets by engaging academics, businesses, and community interest groups, in a workshop developed via participatory methods. The workshop gathered consensus on which social needs were crucial and why, with the outcomes revealing a ranking of desirable social needs that we used to develop our societal-benefit framework. This exposed detrimental gaps in EU-level data gathering, which while exemplary for economic and natural science-based criteria, wholly lacks any formal attempt to gather and centralise social data, reducing the effectiveness, or utterly preventing, evidence-based policymaking (see Appendix).

The Evidence Base

Our research shows that in-depth knowledge and understanding of industry-based societal benefit impacts is a requirement for designing robust policy. Existing datasets do not contain sufficient levels of information and so evidence bases for Just, future-proof policies cannot be developed. Our exploration in designing this societal-benefit index initially found just 28 potential social datasets that could be used. After further evaluation, only 2 of the 28 potentials were suitable. This is in comparison to the 98 physical data sets, all of which were usable. This was due to the differences in how the data sets were presented, preventing direct comparison.

This means policy makers cannot be provided with evidence of industries’ social outputs on the same level as their physical outputs, leaving a gap in understanding of how interventions in industries should be carried out, and the impacts those interventions could have.

Table 7.1 shows workshop participants stated needs from most important (1) to less important (4) based on two different scenarios. “Present day” asked them about their current needs based on the contemporary environmental situation. In terms of current needs, we made no distinction between what participants would classify as personal and societal needs, for our purposes those two categories are a needless distinction. The “SSP3-7.0 Regional Rivalry” scenario asked participants to list their needs based on an environment where “emissions and temperatures rise steadily and CO2 emissions roughly double from current levels by 2100. Countries become more competitive with one another, shifting toward national security, and ensuring their own food supplies. By the end of the century, average temperatures have risen by 3.6 °C” (IPCC AR6, 2022).

Table 7.1 Workshop participants’ collective decisions and suggested social datasets
Full size table

Our workshop helped us identify desired social datasets. Our workshop participants stated that the social datasets should be expanded to include education (i.e., education at all levels and ages), health (i.e., physical and mental health and well-being), social equality (i.e., provisioning for vulnerable, balance of income and living cost, inclusive welfare system), human thriving (i.e., employment job quality, unemployment, non-employment) and ecosystem thriving (i.e., nature-centric designations) datasets. When workshop participants were asked to list their everyday “needs”, food, shelter, and energy were the main priorities, followed by health, community, knowledge, and a purpose in life. When the same question was asked under the IPCC SSP3-7.0 regional rivalry scenario, priorities were similar, however, security and land became the top priorities. Due to the ranking of their needs collectively, debate coalesced around the individual vs society without intervention from the facilitator or convenor of the workshop. The list of needs stated by our participants informed our proposed social datasets. Furthermore, to better understand societal benefit, policymakers need to engage more interactively with society; workshop participants requested both traditional and dynamic methods of engagement and information sharing, providing examples of short documentaries, animated cartoons, and infographics, alongside more traditional executive summaries.

Conclusion and Recommendations

Our research led us to one overall policy recommendation, allowing new benchmarking and longer-term goal setting to take place. This will provide greater clarity, transparency, and actionability for all sectors of society. This overall recommendation is accompanied by a four-step plan which can be acted upon by different EU-level bodies creating a manageable route map to success: Societal benefit must replace the current economic and monetary-based rationale as the grounds for justifying proactive, targeted, and carbon-reducing interventions in industry sectors.

  • Step 1: The policy priorities of the EU Commission and EU Parliamentary Committees must transition away from a focus on GDP expansion, and move towards the promotion of societal sustainability within the EU.

    The dependence on primarily financial market-based mechanisms for climate mitigation does not guarantee, in fact it jeopardises, the achievement of objectives outlined in the Fit for 55 package. When assessing the commitment of industry sectors to climate action, it is imperative to transcend financial capacity for mitigation and consider social output of industries through a societal-benefit lens. This approach entails the integration of social dimensions into the low-carbon transition, recognising that while there may be an initial drawback, namely a mild deceleration of decarbonisation progress, it opens avenues for expediting rapid transition in the near future.

    External, international projects should continue to be explored. However, due to the lack of direct control the EU and member states can exert upon carbon markets and mechanisms beyond the EU border, efforts should be focused domestically. This includes processes that intersect with the EU market, such as further development of the carbon border and new carbon import standards. Thus, policymakers are urged to consider these intricacies as they formulate strategies and policies for effective, sustainable, and future focused climate mitigation efforts.

  • Step 2: To design policies driven by societal sustainability principles, the opportunity to develop a strong evidence base must be available.

    Data is crucial for evidence-based policymaking. Our research is an example of coordinating SSH-based research with STEM-based research to design comprehensive policies for a sustainable future. To do this, the data collection of qualitative metrics needs to be organised, mirroring the existing quantitative datasets as far as possible. This data coordination would not require a heavy investment since much of this data is already being gathered by member states, it merely needs to be collated. We call for a unified policy design approach, created at the EU level, to ensure that sector-by-sector analysis can occur to benefit the whole of society.

  • Step 3: The carbon budget should be equitably divided among industry sectors based on outputs of the developed index.

    Under the current EU ETS, carbon credits can be sold, bought, and traded. This has resulted in carbon credits being treated as a commodity and source of economic revenue. This neither motivates nor assists industries with their transition to lower carbon practices and risks increasing the potential for greenwashing and double-counting emission reductions (López-Vallejo, 2021). For the EU to effectively and accurately reduce overall emissions, the trading of carbon credits needs to be discontinued. The allocation of carbon allowances and credits needs to be centralised within the ETS and the EU Commission, whose role it will be to divide the annually decreasing carbon allowances and credits based on an industry’s overall societal benefit.

    We advocate that those sectors with a high societal benefit, e.g., health industry, agriculture, water treatment, etc., should continue to be protected via free carbon allowances and supported in their decarbonisation journey. Sectors that provide no or low societal benefit should be restricted from free credit allocation and obligated to transition or divest. Industry sectors are working hard on reducing their Scope 1 emissions, however achieving net-zero requires tackling Scope 2 and 3 emissions, which are vital to understanding gross supply chain emissions (National Grid Group, 2023).

    We propose an expanded EU-wide carbon credits system, allocated by the ETS and EU Commission, to support industries providing a high societal benefit. We anticipate this will (1) speed up the transition as the private sector is encouraged to transition to net-zero, (2) prioritise and support industry sectors critical for societal well-being, (3) provide citizens, businesses, and member states with certainty to help their long-term decision-making, and (4) increase stability within the EU economically, socially, and environmentally.

  • Step 4: The inclusion of mixed data, qualitative and quantitative, should be considered across all policy areas to provide richer evidence bases and ensure robust policymaking.

    During our research, while actively engaging and communicating to bridge SSH and STEM disciplines, we discovered the added richness, depth, and understanding that came from collaboration and interdisciplinary research. We strongly encourage further explorations of mixed teams such as ours to create shared ground between the natural and social sciences. This should be replicated across other policy areas which we believe is the key to managing current and future EU-level problems.

Overall, we suggest that while the EU ETS is an excellent step in the right direction, it does not currently go far enough. By basing the carbon credit mechanisms on a purely economic foundation, opportunities for greater action have been missed. This can be rectified by replacing the current economic-based rationale with societal-benefit considerations, allowing policy makers to develop proactive, targeted, and equitable carbon-reducing interventions. We hope that by adopting our policy recommendations, rapid success can be achieved in designing these interventions. Furthermore, we hope that this helps create a more comprehensive decarbonisation plan that demonstrates a more prosperous, competitive, and sustainable future can be achieved.