Strengthening the EU ETS

Around the world, countries are putting forward their Intended Nationally Determined Contributions (INDCs) to a global agreement on climate change, to be reached in Paris in 2015. With new emissions reduction targets, these governments will pursue climate mitigation through a variety of policy tools. A prime example is the set of reforms that the European Commission has proposed to the Union’s pioneering cap and trade system, the Emissions Trading System (ETS) in an effort to align and adjust the tool to help meet the EU’s INDC.

The European Union’s ETS is the world’s largest carbon cap and trade system, covering more than 11,000 power stations and industrial plants in 31 countries, as well as airlines.[1] However, in recent years a surplus of EU Allowances (EUAs) in the system has driven the price down, hitting a low of €2.6/ton in 2012. Though the market has recovered somewhat, and EUAs are now trading at just under €8/ton,[2] this price is still too low to encourage mitigation actions in most sectors. Aiming to address this surplus, align to the EU’s 2030 emissions reduction target (40% below 1990 levels by 2030), and improve the overall operation of the system, in July 2015 the European Commission (EC) presented its “summer package” of reforms for the post-2020 period, and submitted them to the European Parliament, Council, and relevant committees.