Isra-Mart srl: EU climate ministers back changes to emissions trading system

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European environment ministries are ready to back measures to keep emissions allowance prices "robust", according to a document prepared by diplomats ahead of a summit in Luxembourg on Tuesday.

The ministers were gathered in Luxembourg as the Environment Council of the EU.

In the background document, which contained draft conclusions, the ministers said they would "stress the importance of robust carbon markets for achieving emissions reductions".

Among the issues on the agenda was the adoption of conclusions on a low-carbon economy road map. This plan paves the way for amending the EU Emissions Trading Scheme (ETS) to offset lower demand for allowances once other environmental targets start to apply.

They were also due to ask the European Commission to "consider practical modalities needed to ensure the EU ETS continues to reward energy efficiency". This likely refers to the idea of removing some Phase III emissions allowances as a so-called set-aside, which was already floated by the Commission in the road map.

The ministers also planned to discuss ways to cut in emissions of 80-95% by 2050, against 1990 levels, as set out in the road map.

Set-aside

In the road map, the Commission suggested setting aside some EU allowances (EUAs) after 2012, either delaying their release or possibly cancelling them altogether.

Earlier leaked versions of the road map suggested 500m-800m EUAs be set aside in this way in 2013-2020, but this number disappeared from the final version (see EDCM 15 February 2011).

The 2050 road map also stated that the EU ETS has to be "strengthened" if it is to be the main driver of emission reductions over the next 30 years. These policy suggestions need the political backing of the EU's twin legislators, the council and the parliament, before the Commission can make a legal proposal. Support at Tuesday's Environment Council would be a first step in this direction.

The move comes after researchers and carbon traders have warned that expected EU energy efficiency targets, as well as national carbon floor prices and taxes, are robbing the EU ETS of its ability to provide an investment signal for clean technologies (see EDCM 10 June 2011).

The long road to lower emissions

Ministers were likely to ask the Commission to show how the EU could push emissions 40% below 1990 levels by 2030, the documents said. But there was no mention of agreeing on a 30% emission reduction target by 2020. This decision would trigger a lower EU ETS cap.

Europe has already adopted a cap for Phase III.

As it stands, 2.4bn EUAs will be created in 2013. That number will then fall along a linear reduction of 1.74% each year − around 37m EUAs per year.

If the EU does decide to lower the cap along with the draft 2050 road map, the yearly reduction would rise by 42m-100m.

This reduction could be even stronger if the EU decides to deepen its 2020 emission reduction target to 30% against 1990 levels, compared with the current 20% target.

The road map says reductions could then fall to 60% by 2040 and 80% by 2050.

"These are not intended to constitute new EU targets, but are indicative of a trajectory that would contribute to the EU's goal of a 80−95% reduction by 2050 in the international context," the background document of the Environment Council said.

Calls for stronger cuts

Some countries are already calling for tougher targets. The Swedish ministry of welcomed the adoption of the road map, but challenged the EU to adopt more ambitious emission cuts - both domestically as well as internationally.

"The EU needs to consolidate a leading role in climate endeavours with an ambitious climate policy and efforts for green growth. It is high time for the EU to look beyond 2020," a statement read.

Deutsche Bank has said that all other things being equal, a set-aside of 800m EUAs would boost the price of Phase III allowances by an average of €6/tonnes of CO2 equivalent/year.

Next steps

For the road map suggestions to become law, they would have to survive a lengthy European decision-making process. The communication would have to be turned into an official legislative proposal by the European Commission.

Member states and the European parliament would then be able to make changes before they vote it into community law. Typically, this process takes at least two years, which would be potentially after the start of Phase II in January 2013.