The EU ETS should be reformed to work better alongside complementary policies because lawmakers are unlikely to scrap the scheme altogether or get rid of all other climate measures, environmental campaigners Sandbag said in a report published Thursday.
Launching the report, Sandbag founder Bryony Worthington, a UK lawmaker for the opposition Labour party, told a webinar that this was necessary because European lawmakers would never accept an ETS carbon price of towards €100 that could deliver sufficient abatement across all sectors.
“I just can’t see that policymakers would ever allow price to rise to those levels,” she said, adding that instead, the bloc should therefore target support – including through ETS revenues- towards carbon-cutting technology in heavy industry.
Sandbag analyst Matthew Gray said this was reflected in the current market outlook, which he said was for the ETS to remain oversupplied into the 2030s, suppressing prices.
PRAGMATIC ROLE
“The obvious failings of the ETS to keep pace with reality and price carbon appropriately have led some to call for it to be scrapped. Others would rather continue with just the ETS and scrap all other climate policies,” the group said in a statement..
“This report concludes that neither scenario is likely and that rather than engage in a polarised debate we accept that the broad-based ETS will always exist alongside other more targeted climate policies and it must therefore be designed to take into account this reality.”
While many analysts think the massive 2.2 billion allowance surplus will shrink in the coming years as the MSR supply curbing measure takes effect, Sandbag thinks the surplus will top 4 billion by 2020, mainly because it thinks energy consumption will fall sharply as more efficiency measures are deployed, damping demand for EUAs.
“It has become clear to us that the EU’s climate and energy package of 2020 was flawed and we cannot run the risk of making the same mistakes in the 2030 package. There is much we can learn from 10 years of operating a cap and trade policy alongside supporting policies – we need the next set of policy reforms to implement those lessons,” said Bryony Worthington, Sandbag’s director, in a statement.
The report’s key findings:
- The ETS is plagued by oversupply problems, caused by multiple factors including policy interactions and exogenous factors, which include the deployment of renewable energy, economic instability, ‘front-loading’ offsets, power efficiency and industrial decline.
- A portfolio approach is best, on the grounds that it will best overcome non-price barriers, it will support new technologies, and address high carbon lock-in.
- For the EU’s 2030 package, it is crucial that the role of the ETS must be clearly communicated, is resilient to the factors which have caused current problems in the ETS, and contributes to the European Commission’s ambition for an EU industrial renaissance.
NOTE: Carbon Pulse co-hosted a webinar today to launch the report. Click here to view the webinar.
By Ben Garside – ben@carbon-pulse.com
