EU ETS: A balancing act between environmental ambition and - PowerPoint PPT Presentation

EU ETS: A balancing act between environmental ambition and industrial protection? Suzana Carp EU Engagement Lead 11 April 2017

EU ETS – A Cap & Trade system • The cap (Emission Reductions): - defines the level of ambition; - creates constrain/scarcity on the market. • The Trading element (Cost-effectiveness): - Drives emission cuts to where they are cheapest; - Leads to price discovery; - Creates equivalence despite difference in national landscapes (presupposes a functioning market). 1

Art. 191(2) TFEU 1. The polluter pays principle enshrined in the EU Treaties, constitutes the legal basis for this form of pricing on emissions. 2. Derogations from the Principle can only be introduced on a temporary basis (is 25 years still temporary?) 2

EU ETS – The CAP Mind the Gap: Emissions versus Cap 2100 2050 2000 -9% 1950 1900 -11% MtCO2 1850 Sandbag 1800 forecast 1754Mt 1750 1700 1650 1600 2013 2014 2015 2016 2017 2018 2019 2020 Actual EUETS emissions Cap 3

Preliminary ry data sh shows em emissio ions in in 2016 down 2.7 .7% compared to LRF of f 1.74% - str tructural su surplus ab above 3Bt for th the fir first ti time 3500 3000 2500 2000 Mt CO2e 1500 1000 500 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 -500 Surplus available to market Backloading Total surplus 4

The Trading component of the EU ETS 5

Prices in the EU ETS 6

Comparing percentage change from 2008 emissions levels for power and for non-power in aggregate across all countries under the scope of the EU ETS 7

ETS Reform – EP draft and Council 4000 3500 3000 Stationary installations, Mt 2500 2000 1500 1000 500 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 -500 Cumulative surplus Cumulative MSR Cap Historic Emissions Emissions Forecast 8

Council reform proposal 9

Free allocation on the rise – Phase IV 10

Conclusions • Cap under the EU ETS is not driving decarbonisation in the EU; • The trading component takes place on a hybrid market (partially a market, partially using free allocation); • The price of EUAs is closer to irrelevance than to relevance; • Reform proposals on the table don’t address the fundamental problem; • National measures will be increasing. 11