The EU ETS alone is not suitable for driving investment in low carbon power such as solar and wind, but should be the main tool for driving down emissions from thermal power, a report found.

In a paper published on Thursday, think-tank Climate Strategies said the bloc’s carbon market was unsuitable for driving cost-effective investment in maturing renewables due to different risk exposures and operations costs and varied appetites across member states to deploy.

The findings chime a report earlier this month by environmental campaigners Sandbag that other policies were needed because lawmakers would never allow carbon prices to rise high enough to be fully effective.

“The use of complementary instruments should not mean that the EU ETS would become irrelevant as a driver of these investments. The EU ETS would remain relevant as an incentivising instrument for governments to ensure that low carbon investments are undertaken at a pace consistent with the decline in the EU ETS cap,” the report said.

THERMAL GENERATION

But Climate Strategies said the ETS should be the primary policy to decarbonise big-emitting thermal generation, ensure the bloc’s power market operates day-to-day and help align investment signals across member states.

Yet, they said for this to happen, the ETS needs “appropriate scarcity signals” to ensure utilities didn’t lock-in higher carbon generation for the next 30-40 years.

It said that while the MSR was a step in the right direction, it was still unclear how quickly the market will return to scarcity to begin decarbonising the thermal generation mix.

“If this process takes longer than expected, an important risk is that member states with high shares of coal-fired or lignite-based generation may face challenges in decarbonising their thermal power mix in the time remaining before 2050 (except at politically unfeasible high carbon prices).”

By Ben Garside – ben@carbon-pulse.com