Tag Archives: ets

EU Carbon Market Surplus Squeezing Climate Goals

June 12, 2013 click to enlarge A surplus of Emissions Trading Scheme (ETS) carbon permits will require  the European Union to cut emissions by an extra 7 percentage points to meet its 2030 climate goals, according to a report by environmental research company Ecofys. The report, the Next Step in Europe’s Climate Action: Setting Targets for 2030 , finds any future emissions reduction goals will have to take into account the effects of the current carbon permit surplus in the ETS, the largest global carbon market. The EU’s emissions reductions should be around 49 percent compared to 1990 levels, Ecofys says in the report. The EU has a binding target to cut greenhouse gas emissions by 20 percent in 2020 from 1990 levels. The European Commission, the EU’s regulatory arm, said in a paper published in March the 27-nation bloc should cut emissions 40 percent in 2030. Greenpeace has called on the EU to cut carbon emissions by at least 55 percent in 2030, a goal which takes into account Ecofys’ 49 percent figure plus the additional 7 percentage points required to deal with the glut of carbon permits. The ETS has struggled to maintain the value of carbon permits . The ETS saw the estimated carbon price drop 49 percent to €5.82 ($7.73) per metric ton in 2012, down from €11.45 ($15.21) per metric ton in 2011. The glut of permits pushed carbon prices to a record low of €2.46 ($3.25) per metric ton in April. Analysts have cautioned about carbon prices in Europe inching closer to zero unless policymakers take action, either through backloading or some form of long-term structural change. Last month, European carbon prices rebounded after German Chancellor Angela Merkel said the EU should take action on a plan to postpone the supply of permits. The European Commission is scheduled to hold a new vote June 19 on the temporary carbon market fix. Continue reading

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Is There Life After ETS?

By Dave Keating  –  Today, 02:10 CET If the Emissions Trading Scheme does become an irrelevancy incapable of lowering emissions between now and 2020 (see above), then José Manuel Barroso’s declared ambition to put climate change at the top of the agenda during his presidency of the European Commission would be counted a failure. Although environmental campaigners are now among the loudest voices calling for the ETS to be saved, this was not always the case. When the idea of a market mechanism to address the problems of climate change was first proposed, many environmental campaigners were sceptical, to say the least. Then, as it became clear that the ETS was to become the law of the land, some environmental groups clambered on board, joining the business community. However, not everybody joined the party. Friends of the Earth, for instance, has always opposed using a market mechanism as the EU’s main tool for fighting climate change. Ahead of the European Parliament’s vote, a group of 36 global NGOs, including chapters of Friends of the Earth, Corporate Europe Observatory and FERN, the European forests campaign group, released a report calling for the ETS to be scrapped. “The vote on backloading is the wrong debate,” said Hannah Mowat of FERN. “No amount of structural tinkering will get away from the fact that the EU has chosen the wrong tool to reduce emissions in Europe.” The report says that rather than wasting time and energy fixing a broken system, the EU should instead shift to more direct policies for stimulating changes that lower emissions, such as feed-in tariffs for renewables, redirecting public subsidies away from the fossil-fuel industry and towards low-carbon infrastructure, and improving energy efficiency. Such a change of approach would not be straightforward. The ETS is now almost ten years old. For the past decade, the EU’s climate policy has been constructed with the ETS at its core. “I don’t see how [scrapping the ETS] would offer immediate solutions,” said Sam Van Den Plas of campaign group WWF. “That’s a process that would require many more years.” “Despite the disappointing news on backloading, ETS is still a directive in place,” he added. “It’s still a useful policy framework, but the parameters are incorrect. The real debate still lies in the structural changes [to be proposed by the Commission], regardless of whether backloading goes ahead or not.” But the backloading debate has left environmental campaigners in the awkward position of defending a market mechanism they were never keen on from the outset, while the centre-right politicians who devised the system are now silent as it crumbles. Angela Merkel, Germany’s chancellor, was a main proponent of emissions trading, but now she refuses to take a position on backloading. Barroso was also a champion, but has not come out with a statement on ETS since the Parliament’s vote. German centre-left MEP Matthias Groote, chairman of the Parliament’s environment committee, has criticised him for this silence. Quiet support Ville Niinistö, Finland’s environment minister, says that there is still support for the ETS as the main vehicle for emissions reduction, particularly because the alternative at this point would probably be 27 different national climate policies. The UK’s recent unilateral climate action, for instance, seems to be a troubling sign of things to come. But he says that the current sense of crisis around the ETS is alerting political and business leaders to the need for change if the ETS is to be relevant in the future. “There is still momentum behind making sure that the ETS works, but this is a good reminder that NGOs were right when they said that you cannot have a market-based mechanism and then make it too loose, because then there is no market,” Niinistö said. “The ETS is a big part of the European approach, and we should not leave it easily,” he said. “But we have a lot to prove – that this market mechanism works. European companies have a lot to prove – that they want this market mechanism to work. There seems to be quite a lot of discussion within the business world in Europe at this moment, that if they want the ETS to work they should be supportive of making sure it is the main vehicle for emissions reductions.” If no solution to the ETS crisis of confidence is found in the coming months, there could be big implications worldwide for other countries that are copying the EU system – the first and largest carbon market in the world. Australia’s system is set to begin trading in 2015 and has plans to link to the EU ETS. China is launching ETS pilot schemes and California has a fully functioning market. A collapse of the ETS might lead these countries to rethink their plans. Continue reading

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Expert View: What Next For The EU ETS?

17 Apr 2013, 17:00 Sarah Deblock and Bryony Worthington The European Parliament yesterday rejected backloading, a plan to withhold emissions permits from the European Emissions Trading Scheme (ETS) to combat oversupply in the market. So can the ETS recover? Two experts give their views. Without backloading, ETS reform may be undermined Sarah Deblock, policy director for European affairs for the International Emissions Trading Association Backloading is not new. First known as the set-aside proposal, the European Parliament originally proposed it as a solution to address oversupply in the market around two years ago. So why has the parliament now rejected backloading? In recent months, MEPs’ positions across the political spectrum have fractured. Yesterday, nearly 70 per cent of MEPs in the influential right-of-centre EPP group, 86 per cent of the European Conservatives and Reformists, and 40 per cent of the liberal ALDE group rejected the proposal. Just 19 votes out of a total of 754 swung the decision. The result has hurt political confidence in the emissions trading scheme. However, while the vote failed to provide a clear political commitment to the proposal for addressing the current oversupply in the EU ETS, it has also led to public assurances of those MEPs who believe in emissions trading and the need for structural reform, but who do not see backloading as being a necessary part of this process. Many of those MEPs opposed to backloading viewed it as a short term measure only, and did not support that type of market intervention. Therefore, as additional information emerges, most MEPs would argue that their opposition to the backloading proposal is not to be interpreted as opposition to the EU ETS. Moreover a majority of the anti-backloading camp is publicly supportive of reform. But although structural reform is likely to happen with or without backloading, it will be much harder to restructure the ETS if nothing is introduced to make the market more efficient. Backloading is also a way to buy time to avoid the carbon price collapsing further. Without it, the price of permits is likely to start rising and falling depending on speculation over political developments rather than market signals. And if MEPs begin new discussions on long-term structural reform in a context in which the ETS is working inefficiently, the discussions could get sidetracked from redesigning the scheme long-term in favour of a short-term fix. More time is needed for a meaningful reform so that the carbon market can automatically adjust when the economy takes a turn for better or worse. What’s worse, the political situation in Europe is likely to delay ETS reform. With the European elections taking place in May 2014, the new commission is not expected to be formally in place before early 2015. Once a new legislative proposal for reform materialises, it’s likely to take another year or two to get through the European Parliament and European Council. This delay means that without backloading, the ETS is likely to run inefficiently until at least 2016. This will increase the temptation for governments to implement alternative instruments like carbon taxes, even though most politicians would agree that an EU-wide policy instrument such as the EU ETS is more desirable than a patchwork of 27 different national policies. The time has now come to make a strong political commitment to the existing scheme, to acknowledge its difficulties, and to discuss the options on the table for reform. The outcome will also have an effect on the emissions trading schemes that are developing worldwide. Recent examples include Australia, California and the north-Eastern US states, which are starting to look to link to other carbon markets. Progress is also noticeable in the developing world in China, South Korea, Kazakhstan, and Chile. The EU ETS is the biggest emissions trading scheme in the world, and as it is facing challenges, all eyes are on Europe to see how it will address these difficulties. Member states must clarify their position to move the debate forward. The ETS will limp along, but Europe will pay for the delay to reform Bryony Worthington , director and founder of cap and trade campaign organisation Sandbag With the European Parliament’s vote against backloading, the future of the ETS in Europe the short term looks pretty bleak. The carbon price – already at rock bottom – has fallen by close to half. The immediate implications of this are that carbon auctions may struggle to go ahead if bids fail to meet reserve prices. EU member states that have been banking on incomes from carbon auctions to fund public services or supporting green policies will find they have a hole in their finances. This could prompt countries to follow the UK’s lead and introduce carbon taxes to compensate. If policies across Europe start to splinter, it will lead to distortions in trade – and that’s bad for business. The low prices also mean Europe’s most efficient businesses are no longer rewarded for doing the right thing, and those that rely on revenue from selling surplus permits will lose a potential lifeline. In the medium term, it is possible that a more ambitious proposal than the current ETS could emerge from one of the European institutions. A number of MEPs abstained, while several who rejected backloading have said they support fixing the ETS – just not through this measure. Both may support a different approach if one can be agreed. If nothing emerges ahead of the next parliamentary elections in May next year, it will be two years or more before anything can be done at an EU level. In the long term, the ETS will simply carry on regardless – there is nothing in the legislation that can cause it to cease. Prices will inevitably rise in around 10 years as industrial permit surpluses dry up, free allocations disappear and carbon offsetting provisions run out. Sadly for the EU, to sit around doing very little for the rest of the decade would lead to loss of investment. It would also send a very bad signal to other governments.   For this reason, it seems likely the European Commission will now shift its focus to deciding climate targets for 2030. If targets come in at the same time as changes to the ETS, they could speed up a rise in the carbon price. Continue reading

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