The EU carbon market is broken for all the wrong reasons. Successful advances in the Energiewende agenda across Europe now require adjustment of the EU Emission Trading System (EU ETS) to fit with the reality of falling emissions. We have already accumulated a surplus of more than 1,827MtCO₂e and by 2020 emissions will be likely well below the EU ETS cap due to past emission reductions.
While European leaders discuss the EU ETS post-Paris review clause, in light of reductions in emissions from electricity generation that occurred over the last decade, the priority should be enforcing and harmonising the current EU climate legislation.
Saving the EU ETS will take German leadership. Sandbag encourage German Ministers to take more responsibility for past emission reductions and propose as a part of their Government’s position that:
- the EU ETS Phase 4 starting point in 2021 is based on actual emissions in 2019 or 2020;
- the MSR is stabilised through a provision for a size limit of 1 billion allowances in the MSR (10 years’ worth of the return rate). Any allowances above this threshold should be retired.
In our new briefing Germany and the EU ETS we explore how presented policy options can be implemented in a way that ensures that German industry genuinely exposed to carbon leakage is protected with free allocation of allowances after 2020.