EC outlines plan for Emissions Trading Scheme

Mixed reaction to legislative proposal aimed to bolster EU ETS to meet 2030 emissions target

The European Commission (EC) has published a proposal to revise the EU Emissions Trading Scheme (ETS) as part of a wider set of measures outlined in its ‘Summer Package’.

Moves to strengthen the ETS in its next phase have been long awaited as the scheme continues to be dogged by low carbon prices. The proposal from the EC includes a series of measures to strengthen the scheme and follow the announcement earlier this year of a ‘Market Stability Reserve’ mechanism to permanently hold back emissions allowances to boost prices (see Energy World April 2015).

The rules are aimed at the European carbon market after 2020, and are aimed to make the ETS the main mechanism for the EU to reach its ambition of a 40% reduction in greenhouse gas emissions by 2030 – by keeping the trading zone in Europe and not allowing the purchase of international credits.

But the EC will continue to allocate free allowances to emit to industry – though the amount of these available from 2021 will be lower and decline at a faster rate. A total of 43% of annual allowances will be allocated to industry to aim to prevent carbon leakage, while 57% will be auctioned by governments. The aim is to incentivise direct, local emissions reductions.

Point Carbon at Thomson Reuters predicts that under the proposal carbon prices in the EU will reach €30 per tonne (2014 prices) in 2030.

The announcement was met with mixed reactions. The European electricity industry association EURELECTRIC’s Secretary General Hans ten Berge said that the reforms will provide the necessary incentives to reduce emissions, improve efficiency as long as the carbon price signal remains ‘clear, consistent and credible’. EURELECTRIC has long argued for the ETS to be the main mechanism to achieve carbon cuts in Europe, and in a statement it said it was ‘pleased that the Commission has tabled a balanced proposal.’ 

Others were more critical, saying that the proposal did not do enough to clamp down on the free allocation permits. Damien Morris, Head of Policy at environmental think-tank Sandbag, said: ‘This proposal is a step backwards in curbing the oversupply of allowances on the market. The nasty surprise for environmentalists is that we were cheated out of some of the “unallocated” allowances we thought had been placed in the Market Stability Reserve. Worse, the Commission is looking to raid the reserve for a further 300mn allowances.’

The proposal is the start of a legislative process involving the European Parliament and Council that could last two years. Other measures in the EC’s Summer Package include funds for R&D, a revamp of energy efficient product labelling and a consultation on the redesign of energy markets.