Last Chance Saloon for the EU ETS

Modelling Phase 4 reforms to Free Allocation – Avoiding the CSCF

For this report Sandbag has built a model to compare different combinations of ETS reform choices for Free Allocation of allowances. We have used the Commission’s Proposal as a starting point and compared amendments proposed by the ENVI committee.
Crucially, we have tried to find reform combinations that avoid the unfair Cross Sectoral Correction Factor (CSCF) in Phase 4.
We also look at how Free Allocation reform could help bring down the surplus.
As a result of this detailed modelling, Sandbag recommends:

  • use a targeted rather than binary approach for carbon leakage protection,
  • realign the 2020 starting point for calculating the Phase 4 cap (to reflect the reality of where emissions have reached),
  • take all Phase 4 New Entrant Reserve (NER) allowances from the Phase 4 cap (to avoid augmenting Phase 4 with surplus Phase 3 allowances),
  • retire unallocated Phase 3 allowances, or at least leave them in the Market Stability Reserve (MSR),
  • take all Innovation Support allowances from the auction share of the Phase 4 cap,
  • increase the auction share in the event of comparative efforts for mandatory emissions reductions outside the EU ETS region.

Posted on

October 25, 2016