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Carbon pricing

To reduce greenhouse gas in the most cost-effective way, there needs to be a significant and rising price on carbon.

Carbon pricing is considered to be one of the most cost-effective ways to reduce greenhouse gas emissions, as it gives a clear economic incentive to reduce emissions wherever this can be done at a cost below the carbon price.  A carbon price, depending on its level, will help drive investment in low carbon technologies and power generation.  

Carbon pricing broadly takes two forms, a carbon tax and a cap-and-trade approach where emitters have to buy permits to be able to emit. Hybrids or mixtures of these approaches are often used in practice.

In Europe there is a mixture of carbon pricing measures in place or being developed:

  • the EU Emissions Trading System (ETS); a Europe wide cap-and-trade scheme; and
  • national carbon prices, usually in the form of a tax, in a number of countries, including the France, the UK and Scandinavia

Sandbag works to influences these measures, to ensure that they are robust and deliver a carbon price that drives emission reductions in the covered sectors.  We focus on:

  • reform of the EU ETS to deliver an effective carbon price;
  • advocacy related to the development and improvement of national carbon pricing, particularly focusing on the UK, France and Germany; and
  • advocacy related to the need for a sufficient carbon price to drive coal phase out in Europe.

The EU ETS

The EU ETS applies legal caps, decreasing over time, on around 40% of Europe’s greenhouse gas emissions, mainly from power generation and large industry.  It creates tradable emissions rights and delivers a carbon price.

In recent years the EU ETS has been weakened by a surplus of allowances and low prices.  As a result, it is failing to provide the appropriate signals either for emissions reductions now, or long term investment towards a low carbon economy. 

Sandbag was originally set up to focus on scrutinising and reforming the EU ETS.  We’ve had many successes, but there is much more to do.  We focus our work on strengthening the EU ETS, especially looking to achieve a more realistic level of allowance supply.  

As part of the current EU reform of the EU ETS, which is expected to be completed by the end of 2017, we are analysing different options for reform, basing our advocacy work on this firm analytical foundation. Recent reports have looked at:

  • Rebasing the cap to reflect actual emissions at the end of each Phase;
  • Retirement of allowances from the Market Stability Reserve (MSR);
  • How to focus assistance to industry to prevent carbon leakage on those that need it most; and
  • The value of additional actions beyond carbon pricing in reducing emissions.

Our key asks are for reform that substantially tightens the supply demand balance in the market, and leads to a price adequate to help make the transition to a low carbon economy and to meet the EU’s obligations under the Paris Agreement.

We have also developed tools such as the EU ETS Dashboard to help decision makers understand the EU ETS in more detail.

We work to influence the European Commission, European Parliament and key Member States.

Successes

Our successes have included:

improving the design of the Market Stability Reserve within the EU ETS to make it more effective;

securing limits to exclude some types of low quality offsets from the EU ETS;

highlighting the problems with over-allocation of free allowances in the EU ETS to some large industries;

securing recognition of the need for increased ambition in Phase 4 of the EU ETS and the ways in which this can be achieved, particularly through rebasing the Phase 4 cap; and

successfully advocated for retention of the UK’s carbon price support mechanism in the 2016 Autumn Statement.

Latest carbon pricing blog posts

 

Event- Should the UK leave the EU carbon market?

Earlier this week, Sandbag launched its new report on what Brexit means for the EU carbon market at the Institute of Mechanical Engineers in Westminster, with responses from Richard Howard of Policy...
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Forecasting ETS Surpluses

On 12th May, the Commission for the first time published the scale of the ETS surplus[1].  This is the first time this has been published by the Commission since phase 2 started in 2008.  We welcome...
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Event: Green growth in the Czech Republic

** Places still available: RSVP here **   In Prague on Monday 15th May, Sandbag and the Prince of Wales’s Corporate Leaders Group are hosting an event examining how climate and energy policy...
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MSR Claims vs Facts

Seen an industry claim on the Market Stability Reserve? Not sure what the facts are? We get to grips with the proposal here. GET THE FACTS

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