As far as climate change is concerned, we are here because past and current industrial policies have not properly accounted for the negative externalities of greenhouse gas emissions.

“You can’t solve a problem with the same mindset that created the problem”.

The ITRE (Industry Research and Energy) Committee opinion on Phase IV of the EU Emissions Trading System (ETS) does not solve this problem because it fails to address the scope, magnitude and nature of climate change. Rather, it appears to be protecting an old industrial model, which is no longer compatible with the modern industrial landscape of the 21st century (the second half of which is due to be carbon neutral).
Securing investment in Europe is futile while huge issues in the foundations that support those businesses – namely, a stable climate – are left unresolved. With the EEA finding that temperatures in Europe in the last decade are already 1.3oC above average, business in Europe needs action on climate change.
5 reasons why ITRE’s position on the EU ETS won’t get the EU on the path to meeting the Paris Agreement

  1. While acknowledging the importance and irreversibility of the Paris Agreement, the ITRE opinion continues the policy path designed long before the Paris Agreement, with no reckoning of the new implications of aiming to keep global temperature increase to less than 1.5oC. As a minimum, acknowledging the implications of the Paris Agreement should mean starting the Phase 4 cap at minus 30%, which was where Phase 3 was supposed to end in the event of international agreement, but this was never implemented. Rebasing the cap at real emission levels is a major step towards accomplishing this, locking in the reductions which have already occurred. However, the ITRE opinion does not tackle this. Without rebasing, business has increased uncertainty around the future trajectory of the carbon price.
  2. The ITRE opinion proposes a cancellation from the MSR at the end of the Phase III. While good in principle, given the ~2.2 billion EUAs in the MSR by the end of the phase, the 300m cancellation which the ITRE opinion suggests makes the step look almost as insignificant as no reductions at all.

    By 2030 the MSR would contain between 35 and 42 years’ worth of allowances (with 100m release p.a.), while the ITRE cancellation suggests we reduce those numbers by only a drop in the ocean, namely by 3.5 years.

  3. The 2.2% LRF won’t get us close to the 95% decarbonisation target for the EU by 2050. In a presentation in the European Parliament from April 27th  2016, Bert Metz explained what LRF would be required for a Paris compatible scenario (and no, it isn’t just a 2.4% which has very little effect on top of the 2.2%)
  4. The ITRE opinion does refer to the temporal dimension of free allocation to industry but does nothing to gradually support industries towards their path to full auctioning, by missing the chance to propose an innovative-targeted approach to carbon leakage protection.
  5. The ITRE opinion talks about the importance of innovation, acknowledges the fact that the ETS due to current market unbalance fail to promote it, but still lacks any measure that would lead to a carbon price increase. With low prices the Innovation Fund will not be able to fund decarbonisation of industry.

Rather than restricting abatement ambition to current best available technologies, ITRE, the Committee on Industry, Research and Energy, should be demonstrating leadership by focusing on opportunities for advancement in modern clean technologies in our carbon constrained world.
ITRE is right to seek policies that enable industry to thrive on the basis of fair competition. So let’s help industry get ahead of the game by creating a progressive, linear and light path to least cost decarbonisation and have a global advantage in innovative technologies.”
In the ITRE committee, MEPs voted not to address the fundamental problems of the EUETS arising from the continuing oversupply of allowances. This means it will fail to put the European economy on the right track for a prosperous low carbon future.  It is entirely possible to safeguard industry and prosperity while carrying our meaningful reform of the EUETS.  Indeed reforming the EUETS would be a major step towards long-term prosperity.
On December 15th, can the ENVI committee do better?