The EU Emissions Trading Scheme isn’t working. There is a massive surplus of over 2 billion excess allowances in the system and the current price on emissions is way below the level needed to stimulate investment in low-carbon technology or make renewable energy truly competitive.
EU policy makers are aware this is a problem and have developed a proposal to reform the scheme. The EU Parliament will be voting on these reforms next Tuesday. It looks likely that the proposed reforms will be adopted as policy, but there is a range of potential outcomes in terms of how strongly the reform is implemented.
Today I’ve been writing to MEPs who are on the Environment, Public Health and Food Safety committee. These are who will be voting next Tuesday.
Dear ENVI committee member,
I’m writing on behalf of Citizens’ Climate Lobby UK. Citizens’ Climate Lobby is a network of volunteers who lobby elected representatives to take decisive action on climate change. Having started in the US in 2007 CCL has now grown to be an international network of 200+ groups campaigning in countries around the world.
We’re following the EUETS reforms with interest. Looking ahead to the ENVI committee vote next week we’re writing to you to let you know that we fully support you in working for
A strong and early implementation of the MSR. We’re aware there are a number of potential start dates being discussed. In simple terms we feel that this is a case of the sooner the better. 2017 is better than 2019.
Preventing back-loaded and unused Allowances from re-entering the market. We would like to see back-loaded and unused allowances cancelled. We’re concerned about the proposal that 300 million allowances could be sold on the market to raise money for industry innovation. It’s clear that this will weaken the carbon price the reform delivers.
We sincerely hope that the current set of reforms will start to restore the EUETS to being a useful mechanism to drive the transition to a low carbon infrastructure but at best the current reforms will deliver a very moderate carbon price. This isn’t enough. We feel that we need a much more ambitious price on carbon. It is clear that the current reforms are only a start and that further reforms will be needed.
We identify a number of technical issues that will need to be addressed by further reform –
If back-loaded and unused allowances aren’t cancelled as part of the current reform this only postpones the problem of dealing with the excess allowances.
Carbon leakage isn’t an issue at the moment because the carbon price the EUETS is delivering is so weak, but it will be a problem if reforms produce a useful price on carbon. At the moment the only mechanism available to deal with this is handing out free permits to industry at greatest risk. This weakens the carbon price and undermines the purpose of the EUETS. So we would like to see legislation designed to prevent governments handing out free permits.
If the EUETS is going to deliver a sufficiently high carbon price it’s essential that credible mechanisms are put in place to deal with the problem of carbon leakage and ensure industry is not adversely affected. This is where our thinking about how the EUETS should develop is informed by CCL’s Fee and Dividend mechanism. Border Adjustments are a key component of Fee and Dividend. Border Adjustments allow states, countries or trading blocks which price carbon to impose a fee on imports from states/countries/trading blocks which don’t price carbon. We’re aware that the failure of border adjustments on aviation fuel under the EU Aviation Directive has been seen as a test case for the difficulty of imposing border adjustments more generally. At CCLUK we don’t subscribe to this view. Our view is that the Aviation Directive BCA proposal was too one-sided and narrow in scope, and that as China and the US develop their own carbon markets the global context for border adjustments is likely to become more favourable.
We’re also very interested in where the revenue from the EUETS is used. This article makes the case for the importance of the EUETS revenue being invested in low carbon infrastructure but CCL’s proposal takes a more radical view. In Fee and Dividend the revenue collected is 100% redistributed to citizens. This protects consumers from increased prices and ensures the policy is politically sustainable. A study by the Regional Economic Modelling Institute has shown that a 100% redistributed carbon tax will promote economic growth in the US.
We’re very happy to discuss any of this further and answer any questions you may have.
Thank you for all that you do.
Hugh Chapman on behalf of CCLUK