European nations should be allowed to pay for additional emissions reductions in ETS sectors to put towards targets in non-ETS sectors from 2020, according to a proposal floated by Norway’s power industry body Energy Norway on Monday.

Energy Norway called for an assessment of its project-based flexibility mechanism idea as part of the European Commission’s post-2020 proposal to revise the so-called Effort Sharing Decision (ESD) for non-ETS sectors such as transport, buildings, agriculture and waste, which is due before August.

The move would be bullish for EUA prices as ETS caps would effectively be tightened. It would also lower non-ETS costs for richer European states while potentially denying clean investment to poorer EU nations with cheaper abatement options.

The idea was published as Europe’s climate commissioner Miguel Arias Canete, speaking at a webstreamed Brussels event hosted by think-tank Bruegel, said that work on the ESD proposal was proving tough.

“I have started the roadshow of the ESD and its unbelievably difficult. Everyone agrees the whole target but only if their neighbour fulfills the target … we have to discuss with all 28 member states and it’s going to be an extremely difficult task,” he said.

He added that the Commission is examining how the land-use sector – currently not covered mainly because its emissions have been deemed too tricky to measure – can contribute.

This would prove controversial with many environmental campaigners keen to ensure regulation of man-made process emissions are kept separate from the more complex LULUCF sector.

FLEX MECHS

Under Energy Norway’s proposed mechanism, governments would be allowed to carry out emission reduction activities in ETS sectors, whereby EUAs would be cancelled while issuing a corresponding amount of Annual Emission Allocations (AEAs) for the country in the non-ETS sector.

“The mechanism should only be allowed for ETS abatement that is not currently incentivised by the EUA price,” Energy Norway stressed.

It suggested that this could enable Norway to incentivise abatement in its industrial or offshore petroleum sectors, where emissions reductions currently cost around €50-100 per tonne.

This would would still result in an overall cost saving as it would be cheaper than many abatement costs in the country’s non-ETS sector.

Some of Energy Norway’s members are undertaking projects to electrify many of Norway’s oil and gas platforms, replacing the use of offshore gas-fired generators with grid-connected hydropower.

FACTFILE

• Oil exporter Norway faces some of the world’s highest domestic abatement costs as almost all of its power is generated from emission-free hydro.
• Norway’s power and heavy industry are already regulated under the EU ETS, but the government has entered into negotiations to link its non-ETS sectors from 2021.
• This would prevent Norway from buying international carbon credits after 2020 but give it access to yet-to-be-defined EU ‘flexibility instruments’ potentially allowing it to use cheaper EU abatement to meet non-ETS targets.
• The EU leader’s agreement on the bloc’s 2030 climate target struck in Oct. 2014 also included provision for a “limited, one-off” measure for richer member states to cancel part of their EUA auction volume to help meet non-ETS targets.

By Ben Garside – ben@carbon-pulse.com