Why UK ECR MEPs should support the EU ETS back-loading proposal

posted by on 28th Mar 2013

Sandbag have prepared a short position paper on the back-loading proposal dedicated to UK ECR MEPs.

Why UK ECR MEPs should support the EU ETS back-loading proposal

On April 16th a plenary vote will decide whether the European Parliament supports legislation enabling the Commission to defer or “back-load” the auctioning of ETS carbon allowances. Sandbag calls on all members of the UK Conservative Party to support the official position of the UK Government and support the proposed legislation. The current ECR group position, rejecting the new legislation, goes against the UK Government’s position as well as the interests of British business and the environment.

The UK Government not only supports the European Commission’s back-loading proposal but goes further, calling for 1.2 billion allowances to be withheld from auction and demanding a clearer link to be established between the temporary back-loading of allowances and permanent structural reforms.

Sandbag, like the UK Government, believes that structural reform of the EU ETS is needed to restore its centrality as a policy driver of emissions reductions in Europe. Market-based policies help to uncover least-cost solutions making reductions in the most effective way. If the ETS is seen to fail it will lead to a greater reliance on less efficient and more fragmented climate policies, increasing the burden on European businesses.

Already the UK Government has been forced to introduce a unilateral supplementary policy in the form of the Carbon Price Floor. The Carbon Price Floor sets a minimum price that UK electricity generators must pay for their carbon pollution, and has been designed as an escalator with prices growing to £30 per tonne of CO2 by 2020. As of the 2013 budget the Chancellor has already set the top up tax that electricity generator’s need to pay over and above the EU market price for the next three years at £4.94/tCO2 in 2013, £9.55/tCO2 in 2014 and £18.08/tCO2 in 2015. Meanwhile the EU market price is not expected to climb far above £4 over that timeframe. In other words Britain stands to pay double what the rest of Europe pays for its carbon this year, growing to more than five times the market rate expected in 2015. This price disparity will increase as the escalator progresses. It will also increase if the market price of carbon falls, as can be expected if the back-loading vote does not succeed. A vote against back-loading is a vote against British business.

Support for market-based mechanisms does not mean policy intervention is not a good idea. Indeed policies always shape markets - and there is not a single example anywhere in the world of a natural market which would not adjust supply in the event of steeply falling demand. For the ETS the case for adjusting the supply of allowances is even stronger, as this is an artificial market created solely to reduce greenhouse gas emissions.

Finally, it is sometimes said that to alter the auctioning timetable would create a dangerous precedent; however, such an alteration has already taken place: firstly to allow 300 million allowances from the Phase 3 New Entrants Reserve to be sold over 2012 and 2013, and again to bring 120 million Phase 3 allowances forward to be sold for the purposes of hedging by the electricity sector. It has previously been within the Commission’s purview to do this and it is not a novel suggestion.

We therefore urge you to support the back-loading proposal as a key step towards more fundamental reform of this efficient and cost effective policy.

You can also view it online HERE


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