European Commission announces ETS fix

26 November 2012


The European Commission has announced plans to overcome the rapid build-up of excess carbon allowances in the European Emissions Trading Scheme (ETS).

The EU’s executive body has made a formal proposal to delay the auctioning of 900 million allowances and has also adopted a carbon market report that sets out a range of possible structural measures that could be taken to tackle the allowance surplus.

It hopes that the plans will restore confidence in the ETS, boost carbon prices and stimulate investment in clean and renewable energy technologies.

The delay in the auctioning – or ‘backloading’ – of 900 million emission allowances has been given a cautious welcome but some industry groups believe that the measure does not go far enough.

The European Wind Energy Association (EWEA) said in a statement that temporary backloading “is a necessary first step, but will only delay and not solve the structural problem of oversupply in the ETS”. It and other groups, including WWF, have called for allowances to be permanently removed from the system.

The allowances to be backloaded were to be auctioned between 2013 and 2015, and will be reinjected in 2019-2020.

The surplus of emission allowances has built up because energy demand has fallen since the start of the economic crisis. Allowances – which allow industrial installations to emit greenhouse gases – are traded on the ETS and the excess number of allowances has led the carbon price to plummet.

The Commission has not ruled out the possibility of permanent removal of allowances from the ETS. In its carbon market report it has also outlined five other shortlisted options for structural reforms to the ETS.

These include increasing the EU’s carbon reduction target to 30 per cent by 2020, increasing the annual linear reduction factor – i.e., the number of allowances that are removed from the ETS each year – and extending the scope of the ETS to other sectors.

“EWEA remains of the view that a move to 30 per cent greenhouse gas reduction by 2020 is the best fix to the Emissions Trading System, said EWEA’s Stéphane Bourgeois. “Changing the so-called linear factor is the second best option: the total amount of emission allowances currently decreases by a ‘linear factor’ of 1.74 per cent annually. This factor must be increased.”

“The key is for supply to be reduced before 2020,” added Bourgeois. “The EU cannot afford to wait until 2025 for the carbon market to give signals to investors in the power sector.”




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