Europe is currently discussing how it should reform its ETS for the post 2020 period. In July 2015, the European Commission released its proposal on the reform.
Despite being hailed as the flagship of European climate policy, the ETS has failed to encourage investments in low-carbon technologies. Without far reaching reforms, companies can delay or cancel investments in cleaner and more efficient production.
Urgent and bold revisions are needed if the ETS is to be a policy instrument that drives emission reductions. Reforms need to go well beyond what the Commission is proposing.
1. Making the ETS fit for purpose by permanently cancelling surplus pollution permits, by increasing the ETS target every 5-years and raising the linear annual reduction factor to be in line with a cost effective reduction of 95% by 2050.
2. Stopping industry handouts and windfall profits by significantly limiting free allocation through a tiered and focused system. There is no evidence for carbon leakage and recent research shows that future risks are absolutely minimal.
3. Using revenues for climate action. All auctioning revenues should be earmarked for more ambitious climate action and the just transition, both in the EU and internationally, including through automatically setting aside a part of these for the Green Climate Fund as proposed by the European Parliament.
Download: CAN ETS reform priorities after Paris