EU lawmakers must both spell out how Europe’s carbon market can be the bloc’s driving policy for GHG cuts amid a raft of competing instruments, and include a mid-term review clause to fit in with global goals under the Paris Agreement, business association IETA said Tuesday.
The views are the main points IETA set out in its position paper on post-2020 ETS reform proposal and are aimed at influencing EU lawmakers, who can make changes as part of a legislative process expected to take at least a year.
“Lack of policy co-ordination runs the risk of increasing the overall cost of decarbonisation by reducing the effectiveness of individual policy instruments,” IETA said.
The association in particular identified policies to promote renewable energy and energy efficiency, and pointed to its earlier study that found overlapping EU-level policies could reduce the ETS’ effectiveness by upwards of 1 billion tonnes by 2020, more than half the scheme’s annual cap.
IETA’s core aim is to promote the use of market-based mechanisms to tackle climate change worldwide, and its membership includes ETS-regulated businesses in the industry and power sectors as well as financial and service companies.
Its focus on overlapping policies follows calls a week earlier by energy traders’ lobby EFET, which includes several IETA members, for the European Commission to take necessary steps to avoid the ETS playing a “residual role”.
Similarly, IETA urged lawmakers to amend the ETS Directive under the current proposal to spell out an upfront process of assessments and reviews to ensure overlapping policies are taken into account ahead of the fourth ETS trading phase (2021-2030) and subsequent phases.
PARIS REVIEW
The IETA paper also called on lawmakers to make arrangements in the current proposal for how the ETS would be amended following a global review process under the UN Paris Agreement, which features a binding stocktake in 2023 and a binding revisiting of all national pledges in 2025.
“The current ETS revision proposal lacks a ‘review clause’ in 2025 to be able to translate into the EU ETS the potential increase of the EU-wide reduction target for 2030,” IETA said.
Following December’s Paris deal, EU lawmakers have so far shown little appetite to deepen the 2030 EU goal, though several senior MEPs last week raised the prospect of adopting more ambitious long-term targets to align itself with the Paris Agreement.
The IETA paper also makes several recommendations for how lawmakers could revise the ETS reform proposal, including better protection for companies at risk of carbon leakage by considering more than two tiers of free allocation, harmonising compensation for indirect carbon costs, and auctioning Innovation Fund EUAs gradually to minimise the market impact while ensuring stable revenues.
The full paper is available on IETA’s website.
By Ben Garside – ben@carbon-pulse.com
