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EU mulls post-2020 offset ban to meet long-term emissions targets

27 Mar 2013 17:40:24 | edcm

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The EU may ban international offsets credits from the emissions trading system (ETS) after 2020, it emerged on Wednesday, as the European Commission launched its consultation on 2030 carbon emission reduction targets, a so-called Green Paper, which it could set by 2015.

The EU ETS is the largest existing market for these types of credits. Stakeholders have until 2 July to reply to questions such as how to ensure different targets' suitability, harmonise policy and account for varying member state capacity.

The paper states that replacing project-based offsets with other market mechanisms may better harness countries' ability to act on climate change and help develop a globalised carbon market. Offsets have cut compliance costs within the EU ETS, but created uncertainty and some of the surplus that has pushed carbon prices to record lows in this market, the paper highlights.

Offset credits account for 75% of the 2bn credits surplus, according to the non-governmental organisation Carbon Market Watch. It has criticised the EU's suggestion to restrict them only after 2020 while evidence suggests their oversupply will lead "to a net increase of 1.6bn tonnes CO2 by 2020" (see EDCM 22 March 2013).

In addition, the paper warns that projects under the clean development mechanism, which generates offsets such as emission reduction units (ERUs), have led EU industry and states to invest inefficiently in large emerging economies.

The Commission may also review post-2020 measures to limit a carbon price impact on energy intensive sectors; and state aid rules that allow member states to partly compensate indirect EU ETS costs.

2030 targets by 2015?

The Commission omitted proposing a formal 2030 carbon reduction target. Previous road maps state that the EU has to cut greenhouse gas (GHG) emissions by 40% by 2030 to meet a 80-95% reduction target by 2050 and comply with the internationally agreed target of limiting atmospheric warming to below 2°C.

Energy commissioner Gunther Oettinger said the bloc should aim to set legally-binding targets before 2015, given European Parliament elections are scheduled for 2014. He also stressed the long-term outlook needed to meet targets.

"One could say that for energy investments, 2020 was yesterday and 2030 is tomorrow," he said in a press conference.

But the paper questions whether targets should be legally binding or not as well as whether they should be set at EU-, national- or sectoral- level. Another question concerns the number of targets required.

The Commission has set three targets for 2020 when compared to 1990 levels, namely to: cut GHG emissions by 20%; raise the consumptive share of renewable energy to 20%; and save 20% of projected energy consumption.

The paper said that the Commission had designed these existing emission reduction targets to be mutually supportive but added that there were also trade-offs between them. It cited the example of greater-than-expected renewable energy production weakening demand for allowances and lowering the carbon price.

This eroded the ETS' price signal for low-carbon technology and investments, irrespective of whether the overall reduction target was met, the Commission said.

Oettinger said he favoured more targets.

"There are some, also inside the Commission, who say that one goal is sufficient - one CO2 reduction goal for 2030... I agree with them insofar as that [2030 CO2 reduction goal] may be the most important goal, but as the only one it is too little," he said.

He added that in addition to a carbon-reduction target, the EU should set a renewable target, and an energy efficiency one at a later date. Silvia Molteni

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