Climate Change
Friday, 12 October 2012 10:18

The EU is battling with its Emissions Trading Scheme

EU battles with ETS
The Emissions Trading Scheme (ETS) of the EU – one of the cornerstones of the EU climate policy – is experiencing difficulty as certificates fail to find buyers in times of recession. The European Commission has moved to change the auction time profile as a result.

The Emissions Trading Scheme (ETS) of the EU – one of the cornerstones of the EU climate policy – is now experiencing difficulty as certificates fail to find buyers in times of recession. The European Commission has moved to change the auction time profile as a result.

“Is it wise to continue to flood an already oversupplied market? Clearly not,” said Europe’s energy commissioner, Connie Hedegaard, on Twitter. “That’s why we propose to change the auction time profile.” Brussels proposes a delay or freeze in auctions of the certificates from 2013 to 2020 to prop up sagging prices.

The ETS scheme was set up in 2003 to discourage polluters and simultaneously raise funds to invest in clean and low-carbon energy, with the certificates being held by industries that may trade them if unused, but the system is experiencing an oversupply of carbon allowances to industries which have slowed down in recessionary times.



As the scheme widens and goes into its third trading period in 2013, some 8,5-billion tonnes of carbon allowances will be put up for auction between then and 2020.

Hedegaard sees three options, from a small freeze of 400-million tonnes to a medium freeze of 900-million tonnes or a more significant intervention affecting 1,4-billion tonnes. This latter option is favoured by the European Parliament, which would bring the price up to 14 or 15 euros. 

She said the change in the timing for auctions was a short-term measure to improve the functioning of the market. “If the political will is there, all the necessary decisions can be taken before the next auctioning phase starts at the beginning of 2013,” she says.

Hedegaard also said recently that she was happy with the overall progress made so far by the ETS. “The EU ETS emissions continued to decrease in 2011 – it decreased by 2% at the same time that we actually had economic growth. It shows once again that emissions reductions and economic growth can go together. It also shows that the ETS is actually delivering results.”

However, commenting in the UK’s Guardian newspaper recently, Damien Morris, senior policy adviser at the carbon-trading organisation Sandbag, said: “While we welcome signs of a less carbon-intensive economic recovery in Europe, Hedegaard’s attribution of this abatement to the ETS is highly optimistic.

“The reduction happened in spite of, not because of, the EU ETS, and will serve to exacerbate the massive oversupply of carbon allowances that threaten to haunt the system until 2020. Urgent intervention to reduce the supply of allowances is required if the EU ETS is going to help drive a cost-efficient transition to a low-carbon European economy,” he said.

The August recess of the Commission has resulted in details of the European Commission’s plans to remove emissions permits from Europe’s carbon market being delayed until September, which has not helped the carbon prices which have been in decline since July.

Hedegaard said she was bringing forward a review of the ETS, originally planned for next year (still to be announced), but it seems that the Commission intends to prop up weak carbon prices in its ETS by delaying sales of new allowances in the next phase of the scheme, starting in 2013, a process known as backloading, a move which has raised some concerns.

Numerous sources have said that nine of the 27 EU commissioners had raised objections to backloading, which is why steps to guarantee its legality were deemed necessary. It is also felt that delay was a risk, but agreement in time for the next phase of the ETS in 2013 was possible, provided member states did not raise objections.

On 28 August EU carbon permits were trading at around 8,16 euros a tonne (US $10), as opposed to 7,15 euros in July, following a record low in April of 5,99 euros, which can be regarded as disastrous having fallen from a 20-euro level in 2008. However, the consensus of opinion says that the price would recover by 2018.

“The amendment will state on what date the backloaded allowances will be released for auction and what the distribution is each year. My hope is that it will answer these questions and that it will be accompanied by signals or proposals for permanent solutions,” said David Holyoake, law and policy adviser at the non-profit environmental law organisation ClientEarth.

Acknowledgement and thanks are given to the following sources for the information contained in the compilation of this article: www.ec.europa.eu; www.bloomberg.com; www.jlnenvironmental.com; www.guardian.co.uk.

GIL Africa 2017

275x265