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EU surpassing CO2 target erodes incentives for ETS

01 Nov 2012 19:06:30 | edcm

The EU must tighten its greenhouse-gas emissions cap by at least 50% if its emissions trading system (ETS) is to deliver meaningful carbon cuts in the next decade, a green non-governmental organisation (NGO) said on Thursday.

Sandbag cited figures from a draft document leaked last week (see EDCM 23 October 2012) that urged the European Council and presidency to act rapidly and resolutely to save the ETS, as well as statistics published by the European Environment Agency that show that Europe's emissions are 17.6% below 1990 levels, as evidence that the bloc has to "adjust" its existing carbon-cutting measures to safeguard future climate targets.

The NGO also said the EU's environment council has failed to tackle the issue of surplus Kyoto credits, which will further weaken environmental goals.

Critical of current targets

"Just by factoring in offsets surrendered into the ETS in 2011, we find that the EU has effectively beaten its -20% climate target for 2020 with nine years to spare," Sandbag said.

"The environment agency has since confirmed that our interpretation of the data is correct and that Europe is likely to be 20.7% below its 2020 target [this year. These] new emissions data make a total mockery of Europe's current 2020 ambitions, which now look more like a decade of climate inaction.

"This point was rammed home by a leaked draft of the Commission's draft report... which reiterates [its] analysis that the scheme stands to accumulate some 2bn allowances by 2013 - a surplus that, if anything, is likely to grow out to 2020."

The back loading of emission allowances could help deliver carbon cuts akin to levels a tighter cap would achieve, the NGO said.

According to the leaked European Commission draft document, setting aside just 1.4bn EU allowances (EUAs) of the 2bn surplus could put Europe on a path equivalent to enacting a 30% reduction target.

Sandbag said such set-aside would also help Europe take a step towards achieving its longer-term climate goal of cutting its 1990-level emissions by 80-95% by 2050.

The road to Doha

A tighter target would be a bullish factor for carbon prices at a time when the next phase of the ETS is expected to be oversupplied.

But time is running out for the EU to strengthen the environmental integrity of its ETS and notch up the level of ambition it will take to the table at international negotiations in Doha, Qatar, later this month.

Failure to cancel a share of the Kyoto surplus last month has been seen as undermining the bloc's bargaining position with developing countries, which want the surplus cancelled (see EDCM 26 October 2012).

Adoption of a 30% reduction target has also been controversial among EU member states, most of which have agreed to offer a conditional reduction target of 30% by 2020 at UN-led climate treaty negotiations, provided other major economies also agree to tougher cuts (see EDCM 17 August 2012). However, opposition by other members, notably Poland, has persistently stymied the bloc's attempts to adopt the tougher target.

The Doha summit will take place between 26 November and 7 December. MLDB

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