Buckle Up! Tighten the cap and avoid the carbon crash

Three years into Europe’s Emissions Trading System second trading period – how is it performing? This report provides a comprehensive assessment of the environmental outlook of the ETS, covering permit allocations, oversupply, companies use of offsets and projected effectiveness of the cap through to 2020.

It finds that the huge overallocation to industry in Phase 2 has left a double legacy undermining the effectiveness of the scheme to 2020 and beyond: a carryover of permits banked into Phase 3 and an inflated baseline which affects the starting position of the declining carbon cap beginning in 2013. The result: a likely oversupply that grows to an eye-watering 1.9 billion tonnes through to 2020, equivalent of a year’s worth of carbon permits in the scheme.

Sandbag recommends a number of measure to save the ETS from redundancy: that the European Commission propose set-aside of 1.7 billion permits before 2013, as well as opening up the Directive by 2015 to adjust the cap.