• Sandbag says cancelling 1.5 bln EUAs now easier since many to be withheld
• Sandbag wants EU nations to buy 1.6 bln offsets as cost containment reserve
• WWF favours regulations to ensure coal plants are shut

Two environmental campaign groups said Monday that the EU must scale up GHG-cutting efforts to ensure it contributes fairly to global climate action, but differ on whether this would be best done by reforming the ETS itself or supporting it with other policies.

EU leaders last year agreed to cut the bloc’s emissions at least 40% under 1990 levels by 2030 and that the ETS should be the main policy tool to achieve the target, despite its massive allowance surplus and resulting low carbon prices undermining its ability to drive investments in clean technology.

The environmental campaigners argue that the goal is not adequate as a share of the global effort to tackle climate change and should be scaled up ahead of the December Paris meeting, when world leaders aim to strike a global climate deal.

But while Sandbag argues that improving last month’s EU ETS review proposal is the best way to accelerate ambition, WWF wants a separate emission performance standard (EPS) for power plants.

The two ideas are just the start of the lobbying lawmakers will face over the coming months as they begin debating it.

SANDBAG REFORM IDEAS

Sandbag said that the 2030 emission cut target put the EU off track from its own administration’s analysis on how to meet a scientifically-backed 2050 goal to cut 80-95% of emissions.

The group also projected that actual emission reductions are likely to mean 2020 and 2030 goals will be easily met and that deeper targets should be set to avoid a slowdown in clean investment that could make longer-term targets very costly.

“Europe’s current climate targets are not consistent with the science and are failing to keep up with real emissions reductions on the ground. This review of the carbon market is perhaps Europe’s best opportunity to up its game and make a really strong contribution in Paris,” said Sandbag’s Damien Morris.

“A huge and growing oversupply of carbon allowances in the market means deeper cuts are both possible and necessary.”

Sandbag recommended in a report that EU lawmakers to amend the ETS review proposal by:

1) Cancelling 1.5 billion EUAs held in the MSR, which would effectively deepen the EU’s overall 2020 target to -25% from the current 20%.

Sandbag said this could be more acceptable than previous calls to cancel EUAs because lawmakers have already agreed to withhold auction revenues by putting the units in the MSR anyway and this would still leave a buffer of 600 million in the reserve in case of shortages.

2) Adopting a -50% overall 2030 target, which could be achieved with the same 2.2% annual ETS cap reduction as planned if the 1.5 billion EUAs are cancelled.

The remaining 5% of the 50% goal could be met by governments jointly purchasing 1.6 billion international carbon credits over 2021-2030, which could even be sold into the ETS as a cost containment measure, should supply tighten and the MSR become depleted.

3) Keep all unallocated allowances in the MSR.

Sandbag argued that the ETS review proposal is undermined by boosting allowance supply over Phase 4 (2021-2030) with 445 million of unallocated EUAs from the current trading phase, albeit with most destined only to be allocated if industrial production is boosted.

In the longer term, Sandbag recommended three additional measures to ensure stronger climate ambition: five-year trading phases; an expiry date for EUAs put in the MSR; and allowing member states to cancel unallocated EUAs.

COMPLEMENTARY POLICIES

Rather than bolster the ETS itself, fellow environmental campaigners WWF urged EU lawmakers on Monday to instead follow the US and impose emissions performance standards on the bloc’s power plants to “complement” the policy.

WWF published a report co-authored by environmental lawyers ClientEarth that found there were no legal barriers to the move to directly tackle emissions from coal-fired power stations.

Amid political gridlock over introducing a national cap-and-trade system, the US EPA’s Clean Power Plan, published today, would establish a different target emissions rate, or amount of CO2 that could be emitted per megawatt-hour of power produced for each state.

“Europe must also adopt an Emissions Performance Standard for CO2 from new and existing power plants. What is missing now is the political will”, said Darek Urbaniak, energy policy officer at WWF’s European Policy Office.

“Introducing an Emissions Performance Standard would not only prevent lock-in to the worst-polluting infrastructure, it will also provide a clear investment signal for clean electricity, the decarbonisation of the sector by complementing the EU ETS, and binding climate, renewable energy and efficiency targets,” he added.

WWF said an EPS would ensure longer term decarbonisation goals are met far more cheaply by preventing new investments in big-emitting plants that would otherwise need costly refits or shutdowns before the end of their 40+ year life spans.

It noted that the member state-owned European Investment Bank’s decision last year not to fund new plants that emit more than 550g/CO2 per KWh was the first step towards a full EPS.

NOT EASY

The reaffirmation by EU leaders that the EU ETS should be the bloc’s main policy tool diminishes the chances that lawmakers would adopt an EPS or other regulation while also passing law to ensure the ETS meets its share of the 2030 goal, said Marcus Ferdinand, an analyst at Thomson Reuters Point Carbon.

“It’s not an easy policy to get implemented when the EU leaders have made very clear that the ETS should remain the core instrument,” he said.

Point Carbon and other analysts expect EU carbon prices to triple from current levels just below €8 by 2020 due to the already agreed MSR and ETS reform proposals.

But this still means the ETS is not expected to result in prices that would alone make it more attractive for utilities to switch from coal to gas through 2030.

Point Carbon’s Ferdinand sait this implied fuel-switch level would need carbon prices of around €47, but said even current prices were contributing to utility switching, particularly for very old and inefficient facilities.

By Ben Garside – ben@carbon-pulse.com