Today the European Environment Agency reports that the EU has achieved emissions cuts of 19.3% in 2013 relative to 1990 levels. But according to climate think tank Sandbag, the Environment Agency drastically underestimates how fast emissions will fall over the rest of the decade. Sandbag predicts EU emissions could fall as much as 29% below 1990 levels by 2020, driven by aggressively declining emissions in the EU Emissions Trading Scheme. Unless bold new policies are adopted, they warn, spare carbon allowances accumulating as a result of this fall in emissions will seriously undermine the new climate target agreed by EU leaders last Thursday.

Earlier today the European Environment Agency released its latest report on Europe’s annual progress towards its climate change targets. The new report calculates that Europe’s emissions were 19.3% below 1990 levels in 2013 against a 2020 target to cut emissions by 20%. They go on to project that emissions will fall by only 2% over the rest of the decade, despite observed reductions of 2% over the previous year alone.

Sandbag highlights that the Member State projections used by the Environment Agency are already obsolete, failing to fall anywhere near as rapidly as observed missions. This is particularly true for emissions covered by the EU Emissions Trading Scheme. In Figure 4.3, taken from the new report, actual emissions (shown as an orange line) consistently fall below projected emissions since 2010 (shown as a grey dotted line). In fact projected emissions do not fall to actual 2013 levels until 2018 or 2019.

Sandbag has recently published an emissions forecast for the traded sector which expects far more aggressive emissions reductions to take place once current and planned policies are implemented, assuming stringent application of planned energy efficiency measures.

Keeping the EEA’s forecasts for the non-traded sectors of the economy but applying these steeper emissions reductions in the traded sector, Sandbag finds that EU emissions will fall around 8% further than the EEA expects relative to 1990 levels. This implies EU28 emissions will fall to around 29% below 1990 levels by 2020.

Sandbag highlights that this over-delivery of the 2020 target will allow billions of spare allowances to accumulate in the carbon budgets which enforce Europe’s climate targets, and that most of these can be banked forward to weaken the new greenhouse gas targets in the 2030 package. These surpluses, they emphasise, are not just the result of energy and environmental policy, but also the result of a deep recession, weak ambition in the 2020 targets and poor regulation on the use of international offset credits.

The Environment Agency, citing the European Commission estimates that, by 2020, some 2.5 billion allowances will have accumulated in the EU Emissions Trading Scheme, which can carry over allowances into the 2030 package. Sandbag expects as many as 4.5 billion could accumulate within the system.

Applying a methodology developed by Ecofys, Sandbag calculates how much these surpluses could dilute the ambition of the 2030 target if they were carried over as a wedge of allowances sitting on top of the ESD and ETS carbon budgets currently proposed. If all spare allowances were used by 2030, they argue, the new package would not legally prevent emissions from remaining as high as -26% relative to 1990 levels in 2030, higher even than Sandbag’s emissions forecast for 2020.

Station EU ETS Emissions

Damien Morris, Sandbag’s Head of Policy comments: “The European Council concluded that a well-functioning and reformed carbon market will be the main European instrument to achieve the 40% target, but if new reforms fail to tackle the growing surpluses in the EU ETS, it will be the policy which undermines, rather than delivers that target. That is why we are calling for policymakers to fix the EU ETS in the next twelve months or ditch it altogether.”

He continues: “The first test of Europe’s resolve will be to reach agreement on a robust Market Stability Reserve mechanism that starts by 2017 and which does not allow the oversupplied carbon market to be flooded anew with over a billion new allowances. All eyes are on the European Parliament’s Environment and Industry Committees over the coming months.”

Read the full press briefing from Sandbag here.