Turning Point for the ETS

Climate action

The emissions-trading scheme needs reform, but first it needs an immediate patch!

This Op-Ed was published in European Voice on 13.2.2013

By Wendel Trio, director of Climate Action Network Europe. Bernadette Segol, secretary-general of the European Trade Union Confederation.

The EU’s flagship climate-policy tool, the EU emissions-trading scheme (ETS), is at a turning point. With the price of carbon hovering way below €5 per tonne and a glut of permits on the market, something must be fixed or the EU’s main climate-policy instrument will turn to dust. As a first step towards correcting the problem, the European Commission has proposed a measure to withhold pollution permits temporarily, a process called ‘back-loading’.

Back-loading appears harmless enough. All withheld allowances would re-enter the market before the end of this decade. Furthermore, back-loading would not affect credits already owned by companies. Given that the European Commission and many stakeholders recognise that structural measures are needed, back-loading seems like a small step to take.

But opponents do not want even this modest, temporary reform. Despite little evidence that businesses are relocating mainly due to EU climate policy, they claim that back-loading will cause investors to move outside Europe. The opposite is the case. If the EU provides no incentive for low-carbon innovation, European businesses will be left behind in what is a global race to a greener, more sustainable future.

With the carbon price now at a record low, the ETS is failing to drive long-term clean-tech investment, which is its second crucial objective. If the ETS were functioning as intended, the price of carbon would probably be much higher. The argument that the EU is achieving its emissions-reductions goals and, therefore, that the ETS is working ignores this. Moreover, it downplays the synergies that could be created between climate policy and economic innovation if a share of auction revenues were earmarked to support the transition towards a low-carbon economy.

Dissenting voices, including some business lobbies and energy-intensive industries, want to protect their interests – namely, to keep an unsustainable, carbon-intensive, business-as-usual approach running for as long as possible. The European Parliament’s industry committee (ITRE) supported this sentiment when it voted down the back-loading proposal last month. Opponents of back-loading want the EU’s carbon market to die a slow, painful death. But none of the voices speaking out against a short-term ETS fix has either offered alternatives or presented a vision of how the scheme should be reformed.

Moreover, even in the world of energy-intensive, fossil fuel-based businesses, views on back-loading are not unanimous. A number of companies – including giants such as Shell, the Czech firm CEZ and General Electric – have come out publicly in support of back-loading. In a recent open letter, they recognised that the ETS is not working well and that back-loading is needed as “an important first step paving the way for essential structural measures”. If these large and diverse companies can see the value in fixing the EU’s failing carbon market, it shows that the proposal is able to accommodate different companies’ short- and long-term visions.

Some critics claim that climate policy is strangling EU businesses. This is simply incorrect. Policies that give companies incentives to innovate and invest in low-carbon solutions can both create the jobs of the future and fight Europe’s expensive addiction to fossil fuels. Such policies would address two of the most urgent challenges that the EU faces: youth unemployment and soaring energy costs. And it should be recalled that youth unemployment is above 50% in some EU countries, and that oil prices have tripled since 2000.

The European Parliament, including its environment committee, can put things right, by supporting the back-loading proposal as a first step toward full reform of the ETS. The longer we wait to strengthen Europe’s carbon market, the less likely it is that we will enjoy its full benefits.

Read the article in the European Voice