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As pressure mounts on leaders to reach a new global climate change agreement this December, European policymakers have begun the process of constructing laws that will enforce Europe’s emissions cuts out to 2030.

In July, the European Commission released a first major piece of draft legislation, extending and revising the rules governing Europe’s carbon market.[i] This made great fanfare out of an accelerated pace of emissions cuts – but according to a new report[ii] by climate change think-tank Sandbag, the proposed emissions reductions will be overwhelmed by the oversupply in the market and are not in line with a cost effective path to a zero carbon economy. [iii]

Instead Sandbag shows how cancellation of excess carbon allowances can deliver more ambition at minimum cost.[iv]

The Commission's infographic misses some key elements in Europe's climate ambition
The Commission has released plans for further ETS reforms with great fanfare, but new emissions reductions under the 2030 package are tiny compared with the surpluses accumulated by 2020.

 

This new report points out that Europe’s current climate target for 2020 – which aims to reduce carbon emissions by  20% compared with 1990  levels – is not in line with Europe’s official sources defining either a fair or a cost-effective contribution to fighting climate change. These sources suggest cuts of at least 25% are required.[v] It also points out that no formal provisions have been established to increase Europe’s 2030 target under a global agreement, despite the fact that Europe’s current offer is “at least” 40% reductions from 1990 levels.[vi]

The report notes that increased ambition should not be purchased at any price, and outlays three proposals by which Europe could significantly step up its climate ambition flexibly and at minimum cost.  These are:

  • Adopt a 25% target in 2020 by cancelling allowances from the Market Stability Reserve
  • Adopt a 50% target in 2030 through a tighter ETS cap, state-level offsets and a safety-valve mechanism
  • Keep all unallocated allowances in the Market Stability Reserve

We also recommend three additional measures to help EU increase its ambition over time:

  • Introduce five year budget periods for the ETS (and the ESD)
  • Introducing an automatic ratchet on ambition over time by establishing an expiry date on allowances placed in the MSR
  • Granting Member States the ability to cancel their own allowances from auction

Damien Morris, Sandbag’s Head of Policy says:

“Europe’s current climate targets are not consistent with the science and are failing to keep up with real emissions reductions on the ground. This review of the carbon market is perhaps Europe’s best opportunity to up its game and make a really strong contribution in Paris. A huge and growing oversupply of a carbon allowances in the market means deeper cuts are both possible and necessary.

The EU's 2030 target, of 40% emission cuts against 1990 levels, is neither fair nor cost-effective. Through a tighter ETS cap and new offset provisions a stronger 50% cut is in reach.
The EU's 2030 target, of 40% emission cuts against 1990 levels, is neither fair nor cost-effective. Through a tighter ETS cap and new offset provisions a stronger 50% cut is in reach.

References

[i] The Commission memo announcing the new reforms can be found at this link

[ii] Sandbag’s new report “Harder, better, faster stronger: The easy route to increased EU climate ambition” can be found at the following link. 

[iii] The Commission explains that 556 million tonnes of additional emissions reductions will be delivered by a more aggressive emissions cap in the carbon market – roughly equivalent to the annual emissions of the UK. Sandbag counters that 2.1 billion spare allowances have accumulated in the scheme to date and expect this to grow to 4.4 billion by 2020.

[iv] The current surplus of emissions rights stands at 2.1 billion. Sandbag forecasts this will swell to 4.4 billion by 2020, with roughly half of these placed in a new Market Stability Reserve

[v] Europe’s official calculations on the cost effective pathway to its 2050 goal are published in the Commission’s Low Carbon Roadmap (page 4) this specifies a 25% domestic target in 2020 is needed. Europe’s 2050 climate goal in turn was taken from the IPCC’s 4th Assessment Report, which specifies that rich countries needed to reduce emissions by 25-40% by 2020 (page 776 of the IPCC 4AR WG3 report)

[vi] See Commission memo.

 

The European Commission's ETS revision proposals allows 445 million tonnes of allowances back onto the carbon market, almost cancelling out the planned "faster emissions cuts after 2020".

 

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