EU ETS: Failure is not an option

The centerpiece of the European climate policy is currently under great scrutiny, as permit prices have been too low to incentivize a switch to low- or zero-emission alternatives. While some ideas to correct this already move in the right direction, only a broad approach embedding for instance a price corridor could restore the main pillar of climate policy in the EU, argues Edenhofer, director of the Mercator Research Institute on Global Commons and Climate Change (MCC) in a comment piece now published in Nature Climate Change..

“So far, firms under-invested in low-carbon technologies, as current prices do not signal a scarcity of allowances in the long term as a result of stringent emissions caps”, says Edenhofer, chief economist of  the Potsdam Institute for Climate Impact Research (PIK).  Since 2009 permit prices fell from 25 Euro to currently 5 or 6 Euro per tonne of CO₂, at the same time the consumption of coal in Europe has been increasing. “A low permit price in the short term comes with long-term consequences, locking in carbon-intensive infrastructure for decades to come”, Edenhofer says. 

While structural reform proposals, delaying the auctioning allowances to stabilize prices by back-loading and even the creation of an Independent Carbon Market Authority to manage the supply of emissions allowances and their auctioning are discussed already, these steps would not restore the credibility of the European Union Emissions Trading Scheme, he argues.

A much broader and more open discussion is required, Edenhofer says: “This would include the expansion of sectoral coverage, the recycling of revenues from auctionining allowances, the potential role of a price corridor setting a minimum and a maximum carbon prize and burden-sharing schemes”. However, so far there are only a few comprehensive proposals addressing all this. 

“Carbon pricing remains essential for any ambitious climate and energy policy, particularly if the proliferation of coal is to be addressed”, Edenhofer says. Without intelligent proposals, courageous steps for implementation and a general openness to new ideas, the EU ETS is at risk to fail permanently, he argues: “If the EU intends to continue acting as a leader in climate and energy policy, failure of the Emissions Trading Scheme is not an option”.

Article: Edenhofer, O. (2014): Reforming emissions trading. Nature Climate Change 4, 663-664 [DOI:10.1038/nclimate2327]