CAN Europe Position on ETS reforms required in light of the new Paris Climate Agreement

Climate action

CAN Europe’s CAN ETS reform priorities after Paris includes the following main points:

Climate action in Europe before and after 2020 needs to be substantially increased if we are to achieve the goals that governments agreed to in Paris. This requires faster and significantly more reductions in the ETS.

Absent reforms that go well beyond what the Commission is proposing, companies can delay or cancel investments in cleaner and more efficient production:

  • The starting point for 2021 should be at actual emissions. If the emissions will be, as projected, at minus 38% in the ETS sectors by 2020, starting at actual emissions levels would significantly reduce total emissions under the ETS, see graphs on next page.
  • Permanent cancellation of pollution permits. By 2020, the EU ETS surplus will have grown to between 2.6 and 4.4 billion allowances. This huge carry-over very significantly increases the total volume of greenhouse gases that can be emitted until 2030. Therefore the ETS revision must include the permanent cancellation of surplus allowances.
  • A linear annual reduction factor which leads to a cost effective reduction of at least 95% of emissions until 2050. The Linear Reduction Factor (LRF) determines by how much the number of available allowances are reduced every year. The linear reduction factor should be raised well above the 2.2% currently suggested. 
  • Industry handouts and windfall profits have to stop. 188 countries have submitted their climate goals, accounting for over 97% of global emissions. The argument that EU is acting alone on climate is certainly no longer valid as more and more countries are establishing climate and energy policies that cover similar sectors as captured by the EU ETS. CAN Europe supports a move to 100% auctioning. We are calling for fairer and stricter rules which would ensure that free pollution permits are significantly limited through a tiered and focused system.
  • All ETS auctioning revenues must be earmarked for more ambitious climate action, inside the EU and internationally. Reinvestments of auctioning revenues into clean technologies and the smart and effective use of the modernization and innovation funds can create a virtuous cycle. The application of the ‘polluter pays’ principle can support investments in the tools needed for further decarbonisation and climate resilience, in the EU and internationally.

The ETS has been in operation for more than 10 years and is still not delivering on its goals. The post-2020 review of the ETS Directive offers a last chance for EU policymakers to prove that pollution pricing can work for the climate.

A meaningful and forward looking ETS reform will bolster European investments in a clean and competitive economy as it advances investment certainty. 

Download  CAN ETS reform priorities after Paris