Brussels, 29/02/2012 (Agence Europe) - The main market instrument for combating climate change, the EU's emissions trading system (ETS), is at a crossroads, with the prospect of reform of its rules for increasing carbon price effectiveness, and a possible trial of strength with third countries that challenge the fact that civil aviation has been included in the ETS since 1 January this year. The day after the ambitious vote by the energy committee at the European Parliament (ITRE committee) on the draft directive relating to energy efficiency (see EUROPE 10563), and ahead of a debate at the Parliament's environment committee on the latest developments in the spat brewing between the EU and ETS aviation detractors, Peter Liese (EPP, Germany), who was rapporteur on this legislation before its adoption in 2008, said, on 29 February, that he was doubly confident. He is not only confident that the EU has the ability to do what is necessary to stabilise the carbon certificate price but also confident in the EU's ability to resist pressure in order to keep its ETS directive intact if the other parties do not avail themselves of equivalent measures to reduce their CO2 emissions from aviation companies, individually or within the International Civil Aviation Organisation (ICAO).
Addressing a small number of journalists about the vote at the ITRE committee, Peter Liese underlined the link between the directive on energy efficiency and the ETS. In this respect, he was delighted that the compromise had been adopted, after being patiently negotiated with the EP environment committee to allow essential, albeit modest, reform of the ETS with a view to stabilising the carbon certificate price which had fallen too low (€7 a tonne with the risk of falling still further if nothing is done to stop it, while the EU had reckoned on €30 a tonne upon approval of the Climate and Energy Package in 2008). Reform is all the more essential as energy savings that are expected to come out of the draft directive on energy efficiency bring down the price of carbon and, without intervention to set the matter right, the price of carbon would no longer be able to play its role as an incentive to invest in low-carbon technologies.
Peter Liese, who expressed the hope that the Council and Commission would be able to agree on what he called a “very important amendment”, said the text of the compromise calls on the Commission to publish a report as soon as possible and to propose adequate measures before the end of the year, explicitly mentioning the possibility of freezing the necessary number of quotas. He said the compromise does not go as far as the environment committee would like but it is nonetheless a good signal. The price, he explained, has already increased to €9 as the market believes the price will rise thanks to the vote in ITRE committee.
The option of a quota freeze requires European Commission intervention and would, if agreed, be decided under comitology procedure. Cancelling the possibility of transferring the quotas would require co-decision, the MEP pointed out.
Several factors are at the origin of the over-low price of carbon per tonne that has undermined ETS effectiveness: - the 2008 economic crisis and the free allocation for 100% of quotas caused a surplus of quotas allocated during the second phase of ETS (2008-2012); and current economic problems have increased the phenomenon to the extent that the quota surplus allocated could amount to around 200 million tonnes annually at the end of 2012 with - and this is the icing on the cake - the possibility of transferring surpluses to phase III of ETS (2013-2020).
The fact that the carbon price had almost reached rock bottom encouraged a number of member states, such as the United Kingdom, to take national measures to stabilise the situation. Peter Liese said the others could do the same: Germany, for example, after the elections. But national measures create competition distortions. “We have to get the European system running again”, Liese said. Due to the low price for certificates, Liese also sees danger looming over a core element of energy policy in many member states. For example, in Germany, many policy programmes are financed by the climate and energy fund which, due to the low carbon price, has already had to be cut. For example, the refurbishment programme of KfW has been cut from €1.5 billion to €900 million. The ITRE committee, however, was frightened by the prospect of an over-high price. It therefore refused certain amendments by the environment committee aimed at reflecting a CO2 emissions reduction target of 30% by 2020.
On the subject of including aviation in the ETS, which is challenged by 29 ICAO countries and even more so by the 23 signatories of the Moscow declaration (see EUROPE 10559), Peter Liese said the famous Moscow statement was “not very impressive as the countries said what they do not want but not what they want, and are not united over what IACO should do”. The challenge now facing us, he said, is that of involving the environment ministers and having a more substantive debate. The environment committee will have an opportunity, on Thursday morning, to hold an exchange of views with the European Commission on
this subject. (AN/transl.jl)