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Debate on EU ETS reform kicks off, but consensus still needed

01 Mar 2013 17:06:22 | edcm

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Most of the 200 respondents to an EU consultation on possible structural fixes to the bloc's emission trading system (ETS) still considered it the key climate policy tool, it emerged on Friday, with submissions coming from EU member states and lobbies.

Stakeholders replied to a consultation launched by the European Commission on potential structural changes to address the long-term crisis of the scheme stemming from a vast surplus of carbon credits (see EDCM 14 November 2012).

The proposed options include: tightening the EU's carbon-reduction cap from 20% to 30% below 1990 levels by 2020; permanently removing a share of the supply from the system; increasing the annual rate at which emissions have to be reduced in the ETS; including more carbon-intensive industries; reducing or banning the use of international carbon offset credits after 2020; and introducing "discretionary price mechanisms" such as a carbon-price floor or "a price management reserve where allowances are deposited in case of excessive price decreases".

The consultation closed on Thursday, and on Friday the Commission held one of the two stakeholders' meeting scheduled on the issue (see EDCM 30 January 2012).

Participants in the meeting said the implementation of structural measures may lead market intermediaries, such as banks, to return to the market.

Lobbies

Among industrials, however, the idea of structural reforms continues to find strong opposition.

Steel lobby EUROFER said in its reply that it opposed any measure that would either increase the 2020 target and/or boost up carbon and power prices.

Cement lobby CEMBUREAU said it is strongly opposed to any proposal that would introduce changes in phase III of the ETS.

"None of the options presented in the report are real structural measures. All proposed options concentrate on the short-term carbon price, thus addressing the consequence and not the root cause of the problem," it said in its position paper.

Climate lobby Carbon Market Watch recommended a full ban on offsets post-2020 and implementing use restrictions pre-2020 to increase the environmental integrity of credits used for compliance in the EU ETS.

Countries

France already said it hopes the Commission will undertake structural reforms to support the ETS (see EDCM 20 February 2013).

According to a Dutch government document published on Tuesday, the Netherlands backed the expansion of the ETS to cover more industries; as well as raising the annual carbon intensity factor and lowering the 2020 cap to put Europe on the path to meeting its long-term carbon reduction goals.

However, the country said the Commission would likely hold off on legal steps that open up the possibility for structural changes to the ETS until the second half of next year, at the earliest, amid lacklustre feedback from member states.

The Dutch Ministry of Infrastructure and the Environment predicted that the Commission would table legislative proposals to amend the ETS directive only after next year's European Parliament (EP) elections. The EU needs to amend the directive before the ETS could undergo fundamental changes; the next EP elections are scheduled for 5-8 June 2014 in all member states.

The Netherlands noted that as few member states had taken a stance on the proposed back-loading of EU allowances (EUAs) since, and even fewer on the outlined structural changes, it expected only a small number of member states to respond to the consultation.

The back-loading too was in jeopardy, given the "negative mood" the proposal had sparked among some, such as the EP's industry, transport, research and energy (ITRE) committee, the Netherlands warned. The ITRE opposed the back-loading last month (see EDCM 24 January 2013).

Carbon prices fell further on Monday, when it emerged that the EP's environment committee would fail to back smoother and shorter negotiations for the back-loading proposal (see EDCM 25 February 2013).

The Netherlands has spoken out in favour of back-loading.

While Germany has still not adopted an official position on the back-loading proposal, Jeffries Bache analyst Matthew Gray in a briefing note on Friday tipped the country to favour it. "But due to their hegemonic status in Europe, German approval will likely be conditional because of their increasingly inward-looking approach to policy-making," he added. Silvia Molteni and Marie-Louise du Bois

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