Last week EU Climate Commissioner Connie Hedegaard announced a review of the Emissions Trading Scheme (ETS) by the end of this year. It may result in a limit to the number of allowances available and an end to historically low carbon prices in the next ETS trading period (2013-2020). CAN Europe cautiously welcomes this news, but only if it results in a proposal that will be ambitious, and not simply a reshuffle of the total allowances available each year between now and 2020.  

The current glut of allowances in the ETS provides no incentive for low carbon investments and puts the EU at risk of being locked into a high carbon infrastructure for decades to come. Without greater scarcity of permits, the EU will lose the chance to economically reduce emissions by 2050, thereby increasing the cost of the low-carbon transition for future generations.

Commission proposals to tackle the currently dismal ETS must be ambitious and seek to remove allowances from the system before the end of Phase III. CAN-Europe urges the Commission to remove at least 1.4 billion allowances and to ensure that the price of carbon will encourage low-carbon investments solutions. In the long-term, it will be essential to see a permanent reduction in the number of allowances available between now and 2020, in addition to any annual reshuffles.

Details of the proposal have yet to be released. Once details are available, it will be possible to assess just how effective any action is likely to be and how far it goes towards raising EU climate ambition.  The EU needs to move towards at least a 30% emissions reductions target by 2020. This goal can only be achieved with an effective ETS that drives innovation and provides funds for development of renewables and energy efficiency measures. With EU oil prices hitting new record levels in 2012 [1], the EU should grab this opportunity to stimulate a transition away from fossil fuels.

 [1] According to the IEA, oil prices in the EU will hit new record levels in 2012, accounting for 2.7% of the total GDP of the EU.