“The other Euro crisis” – that is how the European Energy Review calls what is happening to the European Union Emissions Trading System (EU ETS). In an article on the new measures proposed by the European Commission, author Sonja van Renssen explains why the current crisis puts at risk the whole EU climate policy.
The European Commission states that there are two main problems: a surplus of approximately one billion extra emissions allowances in the carbon market, as well as, a stubborn low price of these carbon permits.
The Commission has developed two different measures to solve these problems. The first is to delay the sale of extra carbon allowances into the market. The second measure is to implement structural reforms to the ETS.
Some member states and energy-intensive industries are discontent with the Commission’s power to sell allowances at will, while other industries are worried that those delayed allowances may never make it into the market.
Entire Climate and Energy Policy at Risk
The purpose of the EU ETS, as the European Energy Review correctly states, is that the ETS, “is intended to form the backbone of the EU’s entire climate policy.” If the current issues of the ETS are not resolved the European Union’s entire climate and energy policy will be at risk. The Commission has not yet specified the amount of allowances that will be delayed or the reforms that will be made.
The Compensators* support the proposal of deleting the extra allowances that are currently part of the system. Delaying the sale of allowances only to reintroduce them later will not help decrease emissions or increase investment in low-carbon technology.
The reason for the current low price of the carbon permits is the over supply of allowances. With less permits in the market, prices of emissions will rise and consequently firms will have to decrease their emissions in the long run.
If you want to decrease the number of permits right away, compensate your emissions with TheCompensators*!