5 May 2015, Brussels. As the EU and Switzerland are about to conclude negotiations to link the EU and the Swiss carbon markets, a new report shows that benefits of linking carbon markets may be outweighed by the risks, such as reduced overall emissions abatement, lower domestic investments and co-benefits as well as a loss of public funds. The report also finds concerns about public participation and transparency provisions and provides recommendations for the EU ETS revision.
The number of regions and countries that are putting a price on carbon pollution is vastly increasing. Nearly 40 countries already price carbon or plan to do so, including China that will roll out a national carbon market from 2016 onwards. Linking these different carbon markets is being envisaged by several European policymakers.
Jurisdictions with carbon markets currently account for about 40% of global economic activity (GDP)[1]. Linking these different carbon markets with the ultimate goal of establishing a global carbon market is seen as an integral part of the future climate regime, since it can increase the pool of mitigation options available, thereby reducing costs and allowing countries to increase their climate ambition. These benefits however only materialize if the linked carbon markets have a similar level of ambition and a similar design of a number of key features, such as price controls, quantitative and qualitative restrictions on carbon offsets, and the type of allocation method used. Paradoxically, while lower abatement costs are an important economic motive for linking two emission trading systems, they can also constitute a significant political barrier, since citizens of the higher cost system might be reluctant to pay for emission reductions in the other jurisdiction.
The number of regions and countries that are putting a price on carbon pollution is vastly increasing. China, for example, announced that it will roll-out a national carbon market from 2016 onwards, South-Korea’s national cap-and-trade system started early 2015 and South Africa will implement a carbon tax from 2016.
The role carbon markets will play in a future climate treaty to be adopted by the end of this year is still unclear. Yet, several countries and regions, such as Japan and the European Union (EU), see an important role for international carbon markets.
The EU’s carbon market desperately needs to get rid of excess weight if it is to perform as an effective climate change fighting tool in the future. The task of providing a way to do this – for example by permanently cancelling the current oversupply of more than two billions tonnes of CO2 – is now up to the European Commission when presenting its plans to revise the EU’s emissions trading system (ETS) by mid-2015.
On 24 October 2014, the European Council agreed on the 2030 framework for climate and energy [1], including a binding domestic target for reducing greenhouse gas (GHG) emissions of at least 40% in 2030 as compared to 1990. To meet this target, the European Council agreed that the emissions in the EU Emission Trading System should be reduced, compared to 2005, by 43%. A reformed EU ETS remains the main instrument to achieve the emission reduction target. The cap will decline based on an annual linear reduction factor of 2.2% (instead of the current 1.74%) from 2021 onwards, to achieve the necessary emission reductions in the EU ETS. The European Council furthermore gave strategic guidance on several issues regarding the implementation of the emission reduction target, namely free allocation to industry, the establishment of a modernisation and an innovation fund, optional free allocation of allowances to modernise electricity generation in some Member States.
Tomorrow, the EU is expected to announce its climate contributions towards the Paris climate agreement. The expected decision will build on the European Commission’s Road to Paris vision published last week. Hopes are that Ministers take their chances to address a number of critical issues that risk severely undermining the 40% domestic reduction target. They include a clear commitment to increase the 40% target in case of linking the EU’s emissions trading system (EU ETS) with other carbon markets, the way land use emissions are accounted for and the threat the existing surplus of emission allowances pose on the 2030 climate target.
In February members of the European Parliament voted to start the reform of the EU’s carbon market by 2019, and put almost 1.4 billion pollution permits that were due to come back to the market by 2020 directly into the new market stability reserve (MSR). Unfortunately the reform does not provide a structural solution for the lacking environmental effectiveness of the EU ETS, as around 800 million surplus allowances are allowed to flow back to the market again before 2030, diluting the EU’s 2030 target by 3%.
Today, the European Commission (EC) has published a first glimpse of the mitigation contributions the EU intends to contribute to the Paris Protocol. The Communication launched today entitled “The Paris Protocol – A blueprint for tackling global climate change beyond 2020” includes a proposal for the EU’s proposed Intended Nationally Determined Contribution (INDCs) prepared in …
Read more “European Commission publishes vision on the Paris Protocol to tackle climate change”
