Brussels, 14/11/2012 (Agence Europe) - There is decidedly no let-off with regard to the debate on the Emissions Trading Scheme in the EU (ETS). As soon as a back load of 900 million tonnes in CO2 from 2013 to 2015 was proposed for concluding short-term reform of the ETS at the beginning of its third trading period, followed by a year's deferral in ETS allowances for non-EU airlines in exchange for a global agreement at the ICAO for reducing greenhouse gas emissions from the sector (see EUROPE 10729), the European Commission decided (on Wednesday 14 November) that the long-term ETS will be tackled in an effort to stabilise carbon prices by rectifying the imbalances between supply and demand in quotas.
The report on the state of the carbons market in 2012, as presented by the College of Commissioners is more than just a catalogue of strengths and weaknesses in this market instrument, which aims to reduce greenhouse gas emissions at the lowest possible cost. It contains a range of structural measures for the long-term (2020) and aims to tackle the system's major weakness (collapsing carbon prices €7 per tonne) and provide an incentive to invest in energy efficiency and clean technologies.
This report is accompanied by an impact assessment and subsequently launches the debate with regard to the six remaining options: (1) increasing the EU's climate goals to 30% by 2020 (compared to 1990 levels) an option that would not just have an impact on the quantity of quotas traded but would also involve a new calculation of burden sharing between the 27 member states; (2) the permanent withholding of surplus quotas during phase III of the ETS, which begins on 1 January 2013); (3) an annual reduction across the board of the number of quotas (1.74 % compared to the total annual average for 2008-2012), whereas this provision was normally expected to begin in 2020; (4) the extension of the ETS to other sectors (through, for example the inclusion of fuel consumption in sectors not covered by the ETS); (5) limiting access to international quotas which, according to Commission estimates would bring EU surplus quotas by 2022 to a quarter of what they would be without this measure; (6) discretionary management mechanisms for carbon prices, such as a minimum price that word provide certainty to investors, as well as a reserve of quotas to generate prices (by adjusting the supply of quotas when carbon prices have been over-affected by a significant temporary imbalance between supply and demand). If this option becomes operational, it will be necessary to establish a mechanism for deciding on minimum price levels or levels for triggering the reserve, explains the European Commission.
All the different stakeholders have been asked to give their point of view on these options before the Commission presents a legislative proposal at the end of the year and on which a public consultation and exhaustive impact study will take place.
“The Commission wants an even more robust European carbon market that provides a stronger driving force for carbon markets elsewhere. Our carbon market is delivering emissions reductions. But because of the oversupply in the market, the ETS is not driving energy efficiency and green technologies strongly enough. This is bad for Europe's innovation and competitiveness. This is why as a first immediate step, we propose to delay the auctioning of 900 million allowances in the next three years. We must not flood a market that is already oversupplied. Market operators must have clarity before year-end on this. At the same time, the Commission presents options for possible structural measures that can provide a sustainable solution to the surplus in the longer term”, explained Connie Hedegaard, the European Commissioner for climate action.
By presenting this report, the Commission is responding to a request made to it by the European Parliament and the Council in view of adopting structural measures as soon as possible, including a permanent withdrawal of some quotas necessary for reabsorbing the surplus.
NGOs want ETS scrapped. A collective of environmental NGOs (Attac France, Carbon Trade Watch, Corporate Europe Observatory, Counter Balance, Fern) was not very convinced by these measures and responded immediately by advising the European Commission to scrap the ETS by 2020, the only option that is not contained in the report, even though the European Commission is the first to point out that this instrument is not fulfilling its purpose, as observed by these NGOs.
Joanna Cabello from Carbon Trade Watch explained that the ETS is not achieving its goal and has generated unjustified profits for the big polluters whilst deferring the crucial transition from fossil fuels. This has produced undesirable consequences, such as blocking the EU into another generation of energy production based on fossil fuels. She said that the structural flaws have not been tackled by the Commission. These NGOs have criticised the Commission for being exclusively concerned by carbon price stability, although the NGOs believe that the collapse in prices illustrates a contradiction in the very concept of the ETS. Jutta Kill of Fern asked how such a market mechanism with a basic cap on projected industrial emissions could provide reliable price indications. She said that experience shows that this is impossible. The other structural weakness that the NGOs consider has not been tackled can be located in the “hole in the ceiling”. This is what they describe as the use of quotas obtained in exchange for investment in developing countries, although these projects have not led to sustainable development as intended. Quotas have simply shifted emissions without reducing them. Cabello asserted that rather than assuming their responsibilities, politicians have deliberately put the main instrument for tackling climate change into the hands of the financial markets. (AN/trans/fl)