Ten years of the EU ETS: Ideas for the future

Published 22:29 on May 21, 2015  /  Last updated at 11:17 on May 22, 2015  /  EMEA, EU ETS  /  No Comments

To mark the tenth anniversary of the EU ETS, the European University Institute hosted a debate in Florence on Thursday where several experts gave their recommendations for how to reform Europe’s cap-and-trade system over the next decade. We’ve rounded up a selection.

To mark the tenth anniversary of the EU ETS, the European University Institute hosted a debate in Florence on Thursday where several experts gave their recommendations for how to reform Europe’s cap-and-trade system over the next decade. We’ve rounded up a selection.

The recently agreed MSR and last October’s European Council conclusions on a 2030 climate and energy package have set much of the direction for the ETS.

But the ideas below could eventually feature as part of the European Commission’s ETS Review proposal due before August, or may also be raised by lawmakers during the protracted lawmaking procedure expected to take at least two years.

1) Linking provision

Suggested by: Dirk Forrister, president and CEO of the International Emissions Trading Association (IETA):

“An offer to the rest of the world of what it would take to link to the EU ETS. To say something like ‘if you are willing to cap your largest sector as a price of entry, and perhaps a plan to phase in other sectors, and a supplemental use of offsets (by the EU).”

NOTE: IETA is disappointed by the lack of provision in the 2030 climate and energy package to allow linkages in the longer term.

2) Increase the ratio of EUAs/tonne

Suggested by Daniel Dudek, vice president of green group Environmental Defense Fund:

Make the compliance requirement more stringent by requiring companies to surrender more EUAs per tonne of emissions than the 1 EUA per tonne of CO2 ratio currently, for example imposing a 2:1 conversion rate by 2030 and 3:1 by 2050.

“To compensate for that added stringency, allow firms to mine and extract energy efficiency reductions, and consequent CO2 reductions, from their supply chain.”

3) National Innovation Funds

Suggested by: Dorette Corbey, chair of the Dutch Emissions Authority.

“There is the EU fund (NER300) but this is not suitable for small companies. The majority don’t have faintest idea instruments like this exist.”

She added that within the next two weeks, her government would present to the Dutch parliament 28 suggestions for ETS improvements centred around reducing the administrative and cost burdens on smaller regulated companies.

These include replacing monitoring requirements for smaller firms with simpler checks involving submitting energy bills, instituting automatic compliance procedures that charge a company’s bank account based on its emissions, and removing complex heating sector benchmarks.

4) Exclude CO2 cuts from complementary policies

Suggested by: Ondrej Strecker, strategy specialist at Czech utility CEZ

“Let’s adjust the ETS cap by withdrawing emissions saved due to renewable energy policies … The ETS will then be able to focus on classical generation and the industry sector.”

5) A carbon central bank

Suggested by: Carlo Carraro, Director of the International Center for Climate Governance (ICCG):

“We need something very similar to European Central Bank. In long term this is not the case. Simulations show this market is getting bigger, governance problems will increase and we need something that can act promptly and with autonomy. Not in next three-to-five years but certainly at some point.”

Supported by:

Ondrej Strecker, strategy specialist at Czech utility CEZ: “I think it’s a good idea, but we need to be very careful of the framework.”

Andrei Marcu, a senior advisor at Brussels think tank CEPS: “It’s not an easy thing, but we have to react to market changes and the co-decision process is too slow. I think it is necessary, and we should consider it.”

By Ben Garside – ben@carbon-pulse.com