The EU intends to keep awarding its industry free ETS allowances all the way to 2030 as the rest of the world catches up to its carbon pricing standards.

“The provisions on carbon leakage as we had them until 2020 will be prolonged until the year 2030,” an EU source told journalists at a briefing in Brussels on Tuesday.

“That is saying that we will need these provisions, which means implicitly that there is not going to be the 100% level playing field that you will expect if you want to get rid of those provisions,” the source said in response to a question from Carbon Pulse on whether the proposals will reflect increasing moves to impose carbon pricing by other nations.

The European Commission is aiming to publish on July 15 a proposal to reform the EU ETS after 2020 in line with a deal EU leaders struck last October to cut the bloc’s emissions at least 40% under 1990 levels.

The leaders in October instructed the executive that free ETS allocations to industry “will not expire” and that the carbon leakage protection measure will continue “as long as no comparable efforts are undertaken in other major economies”.

GLOBAL SCOPE

Energy intensive industries have asked the Commission to keep free allocation to shield them from costs not faced by many of their competitors.

But environmental campaigners are urging the executive to include provisions to reflect the growing commitments to carbon pricing that other nations are making and give a stronger incentive to big-emitting companies to invest in cleaner technologies.

Jurisidictions with emissions trading now account for 40% of global GDP, according to the International Carbon Action Partnership. That is expected to increase to reflect post-2020 commitments under a global climate pact due to be signed in Paris in December.

“You cannot expect all of a sudden the world will be on level playing field in 2020,” the EU source said.

Rather than scale back free allocations to the EU ETS, currently the world’s biggest carbon market and in place since 2005, the Commission is considering altering the method of allocating free ETS units to a tiered approach that gives out fewer units to those industries better able to pass on the cost to their customers.

GLOBAL MEASURES

The source welcomed a recent call by European oil companies for a global carbon pricing mechanism as “welcome encouragement” for governments to set up their own carbon pricing policies but played down the firms’ aim of getting a worldwide system in place.

“I don’t think this is even in the cards… it was tried under the Kyoto Protocol, but from all our experience there we know this did not happen… it would never have really functioned,” the source said, explaining that it would be difficult to get required consensus for such a move among all 196 UNFCCC parties when some developing nations remained sceptical about such market-based approaches to tackling climate change.

“Individual countries will make a choice on how they will find that price on carbon,” the source said, adding that this could be via trading schemes, carbon taxes or regulation and over time the carbon prices in these measures would align with each other over time.

“I think over time this convergence of carbon prices is going to happen… it can happen through linking different ETSs. For example we could think of starting to linking to China’s ETS in 7/8/9/10 year’s time, when they’ve established the market and we know what it looks like.”

By Ben Garside – ben@carbon-pulse.com