For instructors who include coverage of the European Union’s Emissions Scheme (EU-ETS) in their climate and energy courses, the European Energy Review (in my opinion, a critical resource for those us in the energy and climate teaching biz) recently published an article that does an excellent job of outlining challenges facing the EU-ETS, as “the carbon price stubbornly stays below 10 euros per ton.” Among the article’s take-aways:
- “Plan A” to address the problems facing the EU-ETS is to delay the sales of substantial numbers of EU allowances into the market, perhaps as many as 1.2 billion (with the market facing a glut as high as 2 billion by the end of 2013). “Plan B” is structural reforms;
- Some analysts view back loading options as both ineffective, because it wouldn’t raise allowance prices sufficiently to induce fuel shifting, and it could introduce an additional element of price volatility that might interfere with investment expectations; Moreover, absent EU legislation, these allowances could not be permanently withdrawn from the market;
- The secretary general of Eurelectric advocates an integrated approach going forward, including a new climate and energy project for 2030, an economy-wide greenhouse gas emission reduction target, an adjusted cap for the ETS in 2030 and a post-2020 renewable energy policy;
- Another proposal for structurally reforming the ETS would be to incorporate base level feed-in tariffs and capacity payments into the Scheme, potentially elevated the price of allowances
- Some analysts suggest that sectors that obtain free allowances because of the purported threat posed by carbon leakage should be removed from the list with prices of allowances at 6 euros per ton; Europe’s carbon leakage list encompasses approximately three-quarters of European manufacturing emissions.