Way forward for back-loading in the Parliament and the Council

In November 2012 the Commission published a proposal to delay the auctioning of 900 million allowances in the scheme until 2019 as a short-term measure to increase the price of the EUAs. However, approval of such a measure by the Climate Change Committee requires the European Parliament and the Council to amend the ETS directive first. There has been a strong resistance from both institutions to do so.

On 24 January the MEPs from the European Parliament’s Energy committee (ITRE) rejected the European Commission’s proposal to intervene in EU’s carbon trading market. This vote caused the price of EUAs to fall to a record low of less than €3. On the governments’ side the back-loading proposal has more proponents than opponents, but the uncertainty is still there given that 91 negative votes in the Climate Change Committee could form a blocking minority. Coal-dependent Poland has already announced it will reject the Commission’s proposal.  Cyprus, which is in a very bad situation economically, will also vote against the measure that is likely to bring its revenues from the sale of allowances down to zero. The UK, Italy, France and Denmark give their support; however the final outcome will depend ultimately on the governments of Germany, Portugal, Malta and Czech Republic which have been voicing serious reservations ever since the proposal was published. 

The positive vote in the Environment Committee (ENVI) will have to be repeated in the plenary vote in April. The ENVI Chairman and the rapporteur for the proposal, Mathias Groote, wants to start the talks with the Council based on a strong mandate from the ENVI Committee before obtaining the negotation mandate from the plenary assembly. The vote on speeding up of the procedure will take place next week.  “This will put more pressure on the undecided governments and show the urgency of the measure which has gained wide support among the energy and power sector, industry and environmental organizations up till now” says Paal Frisvold.  

Photo: Source: globaltimes.cn

CCS future dependent on a long-term ETS reform and an ambitious CCS communication

Frisvold underlines that what is needed first is a long-term reform of the ETS system as outlined in the Carbon Market Report published by the Commission in November last year. Increase of the emission reduction target to 30% and increase of the linear reduction factor to more than 2% per year can provide the much needed certainty to potential CCS investors over next decades. “In the case of EU’s ETS and its link with CCS, it’s best to say that a carbon price or signal is a necessary precondition for the demonstration of the CCS technology in Europe, but it is not sufficient. The key issue we’re looking at here is the need for long-term certainty, which will enable operators to make investments that have to come on-stream in 10 to 15 years” he stressed referring to the draft CCS communication circulated in Brussels in January. The draft Communication says regulation is necessary either through sectoral emission performance standards or mandatory CCS certificate schemes – or a mixture of both.

There is a general consensus that the most efficient way to facilitate the deployment of new energy technologies is through a combination of carbon pricing policies, targeted support and market-based incentives.

With the EUAs trading at record low prices well below the estimated necessary €40 — €70/tCO₂ the short term economic rationale to invest in CCS is currently non-existent. Bellona strongly supports the back-loading proposal and recognises the need for further structural measures which might also help to increase the EUAs price as outlined in the Carbon Market Report. However, it is uncertain whether the operating cost incentive provided by the reformed ETS would be enough to incentivize the demonstration projects necessary to initiate commercial CCS development in the EU.

Bellona calls now on the Commission to submit for public consultation an ambitious Communication on CCS encompassing a wide array of policy options including these which are being discussed currently in Europe.  “Bellona applauded the Commission’s draft proposal to move beyond ETS and introduce new mechanisms such as Emission Performance Standards or a CCS certificate system. Europe’s ability to decarbonise will depend on such clear and predictable incentives which proved capable of delivering the CCS investment in other parts of the world,” says Frisvold.