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EU Carbon Market Reform Enhancements and New Implementations

The EU Emissions’ trading system (ETS) determines the price for global warming emissions. The European Parliament is currently discussing improvements to the scheme including raising the price for using coal in as an energy source so there is less incentive for companies to use it. To add perspective with numbers, the surplus of emissions allowances has dramatically risen since 2015. This year, it is 3 billion while in 2015 it was 1.8 billion. The European Commission has proposed that 57% of allocations should be dispersed to Member States and 43% should go to industry within the most resourceful companies. Some of the changes that this new implementation includes include consideration for production increases and decreases and from there adjust the amount of free allowances based on those facts. Unfortunately, the overall consensus is that the changes to the ETS system will have little impact on the current levels of coal usage. However, Europe’s investment in renewable energy and low carbon technologies has recently increased substantially. The United Kingdom currently leads Europe with the carbon price floor.

Meanwhile in the UK, there are currently debates between British businesses on the decision as to whether or not the UK should remain a part of the EU ETS after Brexit. Supposing that the United Kingdom does withdraw from the EU, it still has the ability to remain in the trading system. Iceland, Lichtenstein and Norway are all involved in the ETS despite not being members of the EU. More than 700 energy installations based in the UK, including power stations and manufacturing facilities, are involved in the system. Meanwhile, the ETS 45% of the total greenhouse gas emissions, which is why there is a dispute regarding the decision to stay in the system. Andrew McDermott, the director of the British Ceramic Confederation, has strongly suggested that the UK should leave the ETS when the phase ending in 2020 is over. He believes that the ETS is an incentive for businesses to manufacture more, which directly leads to emitting more. His suggestions include to opt out of the system or to focus more on the Climate Change Agreement. In his opinion, Brexit is the best opportunity for the UK to ‘do something different’ that might actually be effective, compared to the implementations in the past.

Alternatively, Dr. William Kyte OBE, a fellow of the International Emissions Trading Association, argues that the alternatives suggested by McDermott are far too expensive and unreasonable. He states that the ETS is not necessarily a cap on growth, but that it merely places a cap on emissions; which can either be cut back or bought for a cheaper price by another company. However, a current issue presents itself- there is now a low price on carbon resulting from the last recession. This is more incentive for emitters to invest in low carbon technology since it is cheaper to do than invest in a new system. Additionally, the current ETS phase has agreed to a weak target of setting carbon restrictions at 1.74% each year, which does not line up with intentions that were set at the Paris Accord. Dr. Kyte certainly recognizes that the EU ETS is not working well, but he stronly recommends that the UK remain in the system until 2021. Another proposal that he has stated is for the UK to introduce a system that is modeled after the EU ETS, but works on a more global scale and has slightly different implementations and rules.

READ MORE ABOUT THE NEXT STEPS

newsflash: 
Issue 53