Bellona promotes revised EU ETS

The European Commission’s 2030 Green Paper, released on 27 March, invited stakeholders to take part in a consultative process towards the Union’s climate and energy policies after 2020. The new policy framework towards 2030 is regarded as an important tool for the EU to reach its target of reducing greenhouse gas emissions by 80-95% by 2050 compared to 1990 levels, as stipulated in the Energy Roadmap 2050. Bellona provided the Commission with its response to the consultation on 2 July.

Bellona emphasized the importance of ensuring that the various measures for climate change mitigation in the EU should be equally supportive. Under the current framework, there is an unfortunate consequence of taking large-scale measures on e.g. energy efficiency or renewable energy deployment, in that those measures reduce the demand for emission allowances (EUAs) and thus reduces the carbon price, in turn undermining the long-term business case for such investments.

The unexpectedly deep and long recession, combined with the interaction with other carbon reduction policies, has led to a significant oversupply of allowances in the market. Climate efforts in the EU are struggling with the current price of carbon; it was forecasted that ETS Emission Unit Allowances (EUAs) would be traded at around or above €30 in 2013. At the time of writing, EUAs are trading at around €4.30/tCO2.

Structural reform of the EU ETS
Under the current system, the EU ETS is in practice failing to provide a realistic price on carbon and does therefore not stimulate the up-front investment and innovation necessary to meet the ambitious emissions reductions proposed in the Commission’s 2050 low-carbon roadmap.

Because the perception of future scarcity and price stability are important factors for a well-functioning carbon market, Bellona supports a structural reform of the ETS that will allow it to respond to situations of over-supply, as in the current market context. Bellona therefore suggested a reform of the ETS which will establish governance arrangements for optional adjustments to the supply of allowances.

This price-based mechanism ought to be regulated by an independent bank; a European Central Bank of Carbon.

European Central Bank of Carbon
Today, adjusting the supply of quotas implies a lengthy political process. “Because addressing climate change is a matter of outmost importance, we believe that the carbon market should be entrusted to an independent regulator to make the necessary decisions to enable the market to function”, says Director of Bellona Europa, Jonas Helseth. “The establishment of a European Central Bank of Carbon will ensure that the ETS reacts swiftly and with flexibility to unpredictable changes in carbon demand and thereby safeguard the orderly functioning of the market”, Helseth continues. “This bank must be given a mandate with a view to ensure full decarbonisation at the lowest economical impact in the coming decades toward 2050. In this way, measures to promote green technologies will not undermine the carbon market, but strengthen it”, he concludes.

Technology-specific targets
Lessons learnt from the 2020 strategy has shown that clear and legally binding targets for technologies can be very valuable, if they are designed to interact properly with other measures. “Bellona therefore supports new and ambitious legally binding targets for 2030 for renewables as well as for energy efficiency and CO2 Capture and Storage (CCS)”, says Jonas Helseth; “showing such political will can create early markets for emerging technologies and generate necessary investments to bring down costs that in the future will make Member State funding mechanisms obsolete as the carbon price reaches adequate levels”.

CCS
A separate communication on CCS was released alongside the Green Paper for climate and energy. Bellona has written responses to both, yet made it clear that the issue of CCS in Europe should not be treated in parallel to other policies but rather as an integral part of the strategy towards 2030.

“At the EU level, Bellona recommends that the Union sets a similar milestone for CCS as it has previously done for renewable energy in order to ensure the political commitment and necessary funding to drive CCS forward in Europe”, says Helseth.

Way forward
The various responses to the Green Paper from stakeholders all across Europe will now feed into the Commission’s on-going preparations for more concrete proposals for the EU’s 2030 framework for climate and energy policies, which are expected to be tabled by the end of 2013. The Member States have indicated that they intend to have a political debate with a view to provide some initial conclusions on the Commission’s proposals at the European Council in March 2014.

 

Read the Green Paper here