By Adela Putinelu, Policy Assistant, Carbon Market Watch
EU policymakers want to take stock of the 2020 climate legislation so as to choose its 2030 targets and feed this into the EU’s pledge for a post Kyoto pact to be decided in 2015 in Paris. The European Commission has released a Green Paper together with a public consultation to discuss the 2030 policy framework for climate and energy. The context could not be more prone to reform: an ailing emissions trading market that did little to curb industrial pollution in Europe, record low CO2 price and an overreliance on international offsets of very low environmental integrity.
The ‘2030 Climate and Energy Framework’ is another stepping stone in EU’s climate efforts consistent with the international pledge to limit global temperature increase to 2˚ C. Agreeing on a 2030 framework would allow the EU to set its 2030 emissions reduction target to get in line with its Copenhagen pledge to reduce emissions 80-95% compared to 1990 levels. But this comes at a very difficult moment for EU climate policy. The case of EU’s 20% reduction target below 1990 levels for 2020 is telling. Calculations suggest that, once international offsets are considered, the EU is seven years ahead at – 27% below 1990 levels. At the same time, international offsets are responsible for two thirds of the accumulated oversupply in the ETS. For 2030, the European Commission proposed a target of -40%. This is highly incompatible with staying below the 2 degree target and adds nothing to the domestic ambition urgently needed to drive international action on climate change.
EU policy tools are over reliant on cheap international offsets
The flagship instrument for reducing industrial emissions, the Emissions Trading Scheme (EU ETS) is currently oversupplied with 2 billion emission allowances that dragged down the price of emitting one tonne of CO2 from 20 Euros in 2008 to an all-time low of 2.74 Euros in April 2013. Currently, the price looms at around 4 Euros. In practice, this means it is currently cheaper to burn coal than to switch to natural gas, let alone incentivize EU industry to shift away from fossil fuels. What’s even more troubling is that offset credits account for two thirds of the oversupply. Notorious for their low environmental integrity and negative social impacts, reconsidering the use of offsets must be a priority for EU policymakers in crafting its 2030 climate framework.
Unfortunately, troubles with offsets don’t stop here. Somewhat of a backburner of EU climate policy, the Effort Sharing Decision (ESD) is the piece of legislation that aims to establish economy wide targets together with the ETS. It sets targets for Member States to reduce emissions from transport, buildings, agriculture and waste. But these targets are currently very lax and allow Member States to reach their required reductions many times over solely by relying on the use of offsets. Particularly disturbing is that HFC-23 and N2O adipic acid offsets – banned from the EU-ETS from May 2013 because they represent fake emission reductions – have not been banned in the ESD. This double standard is unacceptable and urgent reform for the use of offsets in the ESD is needed to save the ESD from irrelevance.
More ambition needed, will EU lead the way?
Latest reports show that current policies put the world on an emissions path consistent with a temperature increase of between 3.6˚ and 5.3˚ C. At the same time, world governments are squandering for implementing policies that aim to limit global temperature increase to 2˚ C. The EU purports to be at the fore front of international climate efforts, but it fails to lead by example. Its current 2020 target shows lax involvement into driving climate action globally.
An ambitious climate and energy package starts with a structural reform to the EU ETS to phase out overreliance on international offsets. Quality and quantity restrictions in both the ETS and the ESD pre 2020 would pave the way for a full ban on offsets post 2020. These changes are needed because there is incontestable evidence of the very low environmental integrity of the offsets used by companies to comply with the EU-ETS. If that were not a solid reason by itself, offsets also shored up the huge oversupply of permits and sent mixed signals internationally with regards to EU’s domestic efforts to reduce emission levels. EU policymakers now have an important window of opportunity to act decisively on eliminating offset usage in the EU and, at the same time, strengthen its policy instruments to spur real action on climate change. To read our recommendations for the EU’s 2030 Climate and Energy Framework, see here.