EU ETS
believe that the EU ETS has cost the continent’s consumers $210 billion for an “almost zero impact” in cutting carbon emissions. Had these funds been spent in a more targeted way – in replacing the EU’s dirtiest power plants for example – emissions could have been cut by 43% ... “instead of almost zero impact on the back of emissions trading”. Headline macro numbers matter. “But
one thing that we haven’t had for the EU ETS is a micro-level estimate,” says Calel. Most industry studies show that emission reductions come in the form of adopting a technology that already existed but was marginally unprofitable to use in the absence of an emissions-trading scheme. Reductions also come from accelerating investment programmes that was already in place. In the context of the EU stated 2050 target [an objective to reduce GHG emissions by at least 80% below 1990 levels] new technologies need to come online in abundance. And we need to develop new technologies to make them commercially viable. “So far, there is no evidence that the EU ETS has resulted in this,” says Calel. In order to achieve the 2050 target, we therefore
need to be thinking about the EU ETS as a complementary mechanism to something bigger. “And what we need to do is support R&D. We need to support investment in a much more direct way, rather than just trying to coax it out of the private sector. We need to help push the supply of new technologies,” Calel insists. Dutch politician Bas Eickhout (MEP), who sits on
the EU’s Environment Committee, is less circumspect (as you would expect of a GreenLeft member). “If you really want to go to a low-carbon future ... the current ETS is not delivering enough.” For him it’s a question of targets. First, if you really want to go to -80% in the longer-term, then you have to think of a proper adjustment of the ETS, he says. “Would I then ideally get to a set-aside? No, absolutely not,” says Eickhout. The set-aside proposed is a “last option” to get to a political majority. A smarter adjustment of the ETS system according to Eickhout would be to increase the linear-reduction factor. “It’s the famous 1.74%. If you just continue that line, you never get to the -80% in 2050. So you need to go to -2.4%,” he believes. “So my preferred option would be an adjustment of that linear factor. That would, at the same time, also result in -30% in 2020.”
EU ETS Balance (2008-20): Long Market! Surplus of 1.4 billion (EUAs + credit limit)
Source: Thomson Reuters Point Carbon estimates To Eickhout, the current ‘Roadmap’ to emissions
reductions makes no sense. Moreover, the Commission is more in favour of set-aside because it is just easier to achieve within the current political and institutional framework. “We need to have the fundamental discussion about 2030 targets. From an investment point of view 2020 is very close so we have to set our targets for 2030 – a greenhouse gas reduction target, but also a renewables share target and an efficiency target,” Eickhout insists.
“From an investment point of view 2020 is very close so we have to set our targets for 2030”
This fundamental debate lacks political force
at a time when the European economy is reeling. As things stand, what will it take to cancel out this oversupply? According to Schjølset’s analysis Europe would need GDP growth at 4.3% from 2013, 2014 and onwards if surplus emissions are to be eliminated. This will clearly not happen, so the set-aside has become the most likely option with a realistic chance of adoption. It is, in effect supply and demand management. Schjølset lists a number of countries / regions that
will have such measures in place. “Outside Europe, essentially all emission trading schemes that have been adopted, or are under adoption, will have some kind of price mechanisms in place.”
EEX EU ETS Panel
Chair: Stig Schjølset (Thomson Reuters Point Carbon, Head of Carbon Analysis) • Peter Reitz (European Energy Exchange, CEO) • Bas Eickhout (Member of the European Parliament, Environment Committee) • Raphael Calel (London School of Economics, Grantham Institute on Climate Change) • Trevor Sikorski (Barclays Capital, Head of Environmental Market Research)
March 2012 45
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