The EU’s top climate official Jos Delbeke chaired a roundtable expert debate in Florence on Thursday to commemorate the 10th anniversary of the EU ETS. Carbon Pulse covers his responses to some of the experts’ suggestions and concerns.
Delbeke re-iterated that the European Commission will come forward with its EU ETS Review before August, which will cover the post-2020 trading phase and set the long-term direction for the world’s biggest carbon market.
1) Carbon central bank
Several panellists were supportive of the idea of a carbon central bank able to act quickly to adjust ETS supply to respond to changing circumstances.
JD: “This would be a major difference compared to where we are today. In the backloading and MSR debates, there was no appetite to give more discretionary power at any EU institution. Do we want an exchange rate? I cannot see a debate happening in the coming two, three, four years.”
2) ETS revenues
Analysts expect EUA auctions to raise around €150 billion in revenue for EU member states over the next ten years, but there are currently no binding rules to force governments to spend the money on climate issues. While EU leaders have already directed the Commission to earmark some for poorer states and industry, panellists questioned whether spending restrictions should apply beyond 2020.
JD: “No ‘shall’ will appear in the legislation… (but) nothing prevents you from making that debate at national level.”
He appeared to rule out any prescriptive requirements on member state spending in the Commission’s upcoming proposal. Instead, member states would have to be convinced individually of the need for any closer scrutiny of spending.
3) Overlapping policies
Several experts raised concerns that the effect of the EU ETS had been dampened by the CO2-cutting effect of renewable energy and energy efficiency goals. Most accepted it was inevitable the EU ETS would always exist and interact with other policies and economic forces.
JD: “The price impact of complementary policies is now managed through the MSR. That is something that has not yet been fully understood by the market.”
From 2019, the MSR will automatically regulate the supply of auctioned allowances.
For a guide on how the MSR will work, check out our primer.
4) Complexity
One panellist noted there were 1,400 amendments to the previous ETS Directive review in 2008, and expected the upcoming one to have more than 3,000.
JD: “Every time we review legislation, we make it more complicated. This profoundly worries me … it is becoming quite a heroic task to explain the ETS.”
5) Linking
Several panellists raised the prospect of an ETS link with China, as a means of achieving emission reductions more cheaply but also easing the impact that upcoming China climate policies would have on the EU’s cap-and-trade system.
JD: “Real linking is a long-term issue. A decade or more, rather than the coming years … (Though) we can raise the awareness for future linking to help ease problems in future.
Read more here about the prospects of an EU-China market link.
6) Unallocated allowances
Despite a bit of prompting, Delbeke made no remarks about the fate of those potentially hundreds of millions of unallocated EUAs that, as part of the recent MSR deal, are due to be addressed in the upcoming EU ETS review.
By Ben Garside – ben@carbon-pulse.com
