European Energy lobby Eurelectric has backed structural changes to the emissions trading system (ETS) in a document submitted to the European Commission on Tuesday, and said it is the best policy tool to decarbonise the bloc's energy sector by 2050.
"In fact, the European electricity industry sees a serious risk that a non-ETS approach to decarbonisation will not only distort, but also fragment the internal energy market, undoing 20 years of work on harmonisation," it said.
The Commission published a report outlining six possible structural changes to the ETS, which could help permanently redress the oversupply that has been depressing carbon prices in phase II and III of the EU ETS, last year (see EDCM 14 November 2012).
The six options include tightening the EU's carbon-reduction cap from 20% to 30% below 1990 levels by 2020 - backed by states such as Germany, but opposed by others, including Poland; permanently removing a share of the supply from the system - which would require separate "primary legislation" to the existing ETS Directive by the EU parliament and the European Council; increasing the annual rate at which emissions have to be reduced in the ETS; and including more carbon-intensive industries, such as shipping and agriculture, in the ETS.
"Among these, Eurelectric gives highest priority to an early revision of the annual linear reduction factor, in line with a 2030 target," the lobby said.
"A revised linear factor coming into effect before 2020 would need to fall in the range of 2.3%, depending on the economy-wide greenhouse gas emissions reduction goals and burden sharing between the ETS and non-ETS sectors."
"Retiring EUAs in phase 3 is seen as a subsidiary option because it does not provide a long-term signal. However, as the revision of the linear factor cannot take effect immediately, some Eurelectric members consider that a retirement is necessary to re-establish market confidence in a relatively short time."
The lobby added that it also "firmly favours" expanding the scope of the ETS to other sectors, as this would continue to develop a harmonised and integrated energy market at EU level and achieve carbon-reductions across a large section of the economy.
Eurelectric also supports a temporary backloading of allowances, until more permanent changes can be agreed, it said.
The Commission will host two consultation meetings on the possible options for structural changes to the ETS in March and April. In the 1 March meeting, the Commission said it will also take stock of any additional options for possible discussion in the second meeting, provisionally scheduled for 19 April. MLDB