Criticism trails review of EU’s carbon-trading scheme

JUST as the European Union announced plans to overhaul its weakened carbon-trading program and redesign its electricity market, in efforts to help the bloc meet its targets to curb greenhouse gas emissions, several criticisms have continued to trail the move.

Although the scheme is meant to encourage companies to become more energy efficient but many European businesses argue it will lead to “carbon leakage” – the CO2 just being burned abroad by lower-cost rivals outside the ETS zone.

But, EU has insisted that, one of the key measures was a legislative proposal to remodel the region’s carbon-emissions trading system for the period after 2020, by speeding up the reduction of the number of emission allowances the EU doles out.

Under the new measures, the EU wants to shrink the overall number of emission allowances at an annual rate of 2.2%, faster than its current rate of 1.74%. This measure is intended to drive up the price of allowances, which currently trade at €7.74 a metric ton of carbon dioxide emitted, and reduce overall emissions.

Energy Commissioner Miguel Arias Cañete said that, with the new initiatives, “we are taking a decisive step to enshrine the EU’s [climate change] targets,” which include a reduction of carbon dioxide emissions of at least 40% from 1990 levels by 2030.

In recent years, the world’s first carbon-trading mechanism has been undermined by a severe drop in prices, partly due to decline in industrial activity amid the economic crisis, as well as an over-allocation of emission allowances when the system was set up in 2005 to encourage investment in renewable energy and low-carbon technologies.

Environmental and business groups say that the price of allowances has to reach at least its précises high of around €30 to create the necessary incentives for investment.

“Building on the lessons that we learned on the past experience of the emission trading system, now we are going to address all the weaknesses found in our carbon market,” Mr. Cañete said.

Brussels would also allocate as much as €160 billion in allowances free, primarily to the most efficient companies in sectors such as cement, chemical and glassmaking industries, which are most likely to relocate to countries outside Europe that have less strict carbon emissions rules.

The energy commission proposes that member states use the revenues from emissions allowances to help non-EU and developing countries finance investment to help combat climate change.

Europe’s cap-and-trade system is the largest of its kind in the world and covers some 11,000 power stations, industrial plants and airlines in 31 countries—the 28 EU member states as well as Iceland, Liechtenstein and Norway.

However, despite claims by Cañete that the proposal to reform the carbon-emissions trading system is “balanced” because it takes various interests into account, it drew criticism from both industry and renewable energy advocates.

“A further cut in emission rights from 2021 and the expected rise in electricity prices will add costs of around €1 billion annually for the German steel industry by the year 2030,” said Hans-Juergen Kerkhoff, head of Germany’s steel association Wirtschaftsvereinigung Stahl.

By contrast, the European Wind Energy Association said Europe wasn’t going far enough to meet its climate change goals.

“The ambition of the reforms laid out in this package won’t be enough to guarantee a fuel switch and drive investments in renewables,” said Kristian Ruby, the Wind Energy Association’s chief policy officer.

The carbon-trading proposal, which now has to be agreed by the European Parliament and member states before it can be adopted in law, is part of the EU’s broader efforts to further integrate national markets, wean itself off carbon, and ensure the security of its energy supply.