CCAP Supports Structural Reform of the EU Emissions Trading System

Last week the European Parliament supported a temporary measure that will stabilize the EU carbon price in the coming years.

This so called “backloading” proposal will delay the auctioning of up to 900 million EU allowances over the next several years. These allowances will then be returned to the market before 2020. Although a positive move, a more fundamental reform to the EU Emissions Trading System (EU ETS) will be required in the near future in order to address the structural surplus of EU allowances.

This past February CCAP published “The New Deal: An enlightened industrial policy for Europe through structural EU ETS reform.” This paper addresses the fundamental issues that have been standing in the way of a thorough EU ETS reform so far. More precisely, CCAP explored opportunities to meet the concerns related to EU industrial competitiveness and integrate them into a structurally reformed EU ETS.

This report and subsequent proposals have been well received by a broad range of stakeholders in Brussels. In particular, CCAP had the honor to present its report at a high-level breakfast event in the European Parliament organized by MEP Karl-Heinz Florenz, who is the European Parliaments’ rapporteur on the state of the EU carbon market.

Now that the European Parliament has green-lighted backloading of EU allowances, the European Member States will need to seek agreement as well. A growing number have been supportive so far and CCAP expects full support by a qualified majority of Member States in the early fall of 2013.

Both the support of the Member States and the European Parliament for the stop-gap backloading measure should open the door for an enhanced structural reform process of the EU ETS. CCAP hopes that such reformed EU ETS will address some important issues in the system. In particular, the structural surplus of allowances and the need for an enhanced industrial and innovation policy that is embedded and integrated in Europe’s future climate plans. CCAP in particular proposes a new industrial innovation and transition fund that will be funded through the auctioning of allowances. It will facilitate the transition to a European low carbon economy while at the same time maintaining or even improving European industrial competitiveness. CCAP strongly believes that industrial growth through a supportive carbon price, enhanced productivity, resource and energy efficiency driven by smart innovation economics will be a key element in addressing the climate challenge both in Europe and the rest of the world.