While the EU ETS is delivering in some ways it “cannot be right” that the market continues to be oversupplied while the bloc is off course towards meeting its long-term climate goals, think-tank CEPS said in a report on Monday.
In its first annual State of the EU ETS Report, CEPS’ Carbon Market Forum aimed to assess whether the market is fit for purpose and is delivering on its objectives.
The 20-page report recognised that the EU ETS is on course to meet its 2020 target to cut capped emissions by 21% beneath 2005 levels, but said “it must be a concern” that the target does not seem to be in line with the bloc’s 2050 emission goal of a 80-95% cut on 1990 levels.
“One can say that the EU ETS market is long, while environmental delivery requires much more to be done. This combination cannot be right,” said Andrei Marcu, the head of the CEPS Carbon Market Forum and one of the report’s authors.
The report found that market liquidity is generally holding up despite a recent exit of some market participants.
But it questioned whether the current focus over the share of freely-allocated carbon allowances and industrial competitiveness among stakeholders is overshadowing the long-term adequacy of the ETS in meeting environmental goals cost-effectively.
“The EU ETS is making a difference in establishing a price for carbon and incentivizing, through its resilience, and direction towards increased scarcity, significant corporate shadow prices. However, EUA prices at current levels cannot trigger operational, or medium-to-long term change, which is triggered by other, more costly measures, which have other additional objectives, such as renewable energy policies. The need to find mechanisms to incentivize innovation must be a significant concern.”
The report was written following a January meeting of its membership – drawn from across industry, academics and NGOs – which was held under Chatham House rules to encourage open debate.
Over the coming months, CEPS intends to hold a series of events based around the report with stakeholders and lawmakers at the EU Parliament and in five EU capitals, intending to help shape the debate of the post-2020 EU ETS reform proposal.
By Ben Garside – firstname.lastname@example.org