Pöyry presented today at the Carbon Forward 2017 conference a Policy Coherence Mechanism for the EU’s Emissions Trading Scheme (ETS). The proposal is intended to ensure that the effectiveness of the carbon market does not suffer amid calls to strengthen other instruments who also drive decarbonisation. Pöyry Management Consulting developed the mechanism to deal with policy overlaps in a structured and predictable manner on behalf of a consortium made up of the three largest Nordic utilities – Fortum, Statkraft and Vattenfall.
Decarbonisation policies, such as support for energy efficiency/renewable energy or the legislated phase out of coal generation, act outside the European carbon market, but they do depress demand for emissions allowances. As a result the carbon price slumps, muffling incentives to invest in more cost-effective decarbonisation alternatives. Pöyry’s report highlights that policy overlaps have been a significant contributor to the current ETS surplus, and that this contribution is set to continue as a result of incoherent targets and new policies in the 2030 framework.
Pöyry’s proposed Policy Coherence Mechanism safeguards the environmental integrity of all EU climate instruments. It allows overlapping instruments to be implemented, but reduces the amount of allowances to be released on the market in order to insulate the ETS from interferences. Because it only acts on auctionable allowances, the Mechanism has no impact on the free allocation of allowances to industry to protect it against carbon leakage.
Pöyry believes the mechanism is key to delivering a more effective ETS and to facilitate the cost efficient transformation of the energy sector towards innovative and low-carbon technologies.
Alex Luta, Consultant
Pöyry Management Consulting
Tel. +44 1865 812251
Pöyry is an international consulting and engineering company. We deliver smart solutions across power generation, transmission & distribution, forest industry, chemicals & biorefining, mining & metals, transportation and water. Pöyry’s net sales in 2016 were EUR 530 million. The company’s shares are quoted on Nasdaq Helsinki (POY1V). Approximately 5500 experts. 40 countries. 130 offices.