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Today Sandbag launches its [first major report on how the EU emissions trading scheme](http://sandbag.org.uk/files/sandbag.org.uk/Sandbag_ETS_SOS_Report_0.pdf “”) is working. Given that the scheme covers 50% of all EU carbon emissions, whether it’s working or not goes a long way towards determining whether EU efforts to tackle climate change are up to scratch. And at the moment the good ship ‘ETS’ is in need of rescuing.

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The ETS is sinking under the weight of a potential 1.6 billion surplus emissions permits and equivalent offset credits available between now and 2012. As with any market huge surplus supply means that the price, in this case of carbon, will stay low. This means that it is cheaper for companies to buy surplus permits and credits to meet their ETS caps, than make the investments they need to actually cut their own carbon. In fact, the EU could hit its targets for the next seven years just through using up the 1.6 billion surplus, but standing on making genuine cuts to emissions.

So how has this happened? Well first of all, the caps on emissions under the scheme were set politically rather than in line with the science of climate change, so they were set too high. In addition, heavy industry succeeded in getting massive allocations of permits after another round of special pleading and lobbying within the EU. A mixture of overallocation and the recession now means that rather than the ETS costing industry money, they could make €5.4 billion from selling their spare permits. Even with high caps the EU was still worried it would be too difficult for countries and companies to meet so allowed for millions of offset credits from overseas to be treated as equivalent to emissions cuts at home.

Sandbag is pushing for action to tighten the caps under the ETS and remove some of the hot air in the system. And with Copenhagen talks now close we think it’s vital that EU leaders do this, after all if we don’t step up with ambitious targets, are others going to? The good news is that we think it’s easy for the EU to up their game, and get the ETS back onto safe waters. With so many surplus permits in the system, we can now cut our emissions by 30% against 2005 levels with ease, and cheaply too. An extra 0.1% yearly reduction per year from 2013 is all that’s required – now surely with what’s at stake, that’s not too much to ask?