EU ETS reform unlikely before new Commission

London, 5 March (Argus) — Long-term structural changes to the EU emissions trading scheme (ETS) are unlikely to be decided upon before the new European Commission is elected in May 2014, according to the International Emissions Trading Association (Ieta).

Current debates surrounding long-term reforms are likely to continue until the European elections, and the outcomes of these debates will form the basis for legislation once all newly-elected commissioners are approved, which is expected in early 2015.

“If a full-scale review of the EU ETS is decided, this could take up to another two years, meaning these reforms may not actually be implemented until 2017,” Ieta EU policy director Sarah Deblock told Argus. This also highlights the importance of supporting the back-loading proposal for EU ETS allowances, as it is currently the only proposal on the table to re-address the imbalance between demand and supply. “But it is vital that this review successfully reforms the EU ETS without the need for further intervention down the line — we do not want to have a full-scale review every few years.”

In November 2012 the European Commission published six options for structural measures to reform the EU ETS in its report The state of the European carbon market in 2012. Three of the options — increasing the EU emissions reduction target to a 30pc cut from a 20pc cut against 1990 levels by 2020, permanently retiring allowances in phase 3 of the EU ETS (2013-20) and discretionary price management mechanisms — were discussed in a stakeholder meeting on 1 March, while the other three — early revision of the annual linear reduction factor, extension of the EU ETS to other sectors and limiting access to international credits — will be discussed on 19 April.

“Ieta would like the discussion on a flexible mechanism to develop around the idea of having flexibility in supply volumes rather than pricing, and for a pre-set formula based on quantity to be written into legislation rather than being at the commission's discretion,” Deblock said. “The way this option is presented in the commission's proposals associates flexibility with a particular price — this would change the very nature of the EU ETS, which we do not want to see happen.”

A pre-set formula based on quantity not price would allow stakeholders to know in advance how many auctioned allowances would be removed or added to the market at a certain “trigger” point, which would be much more effective at maintaining the EU ETS, Deblock argued.

“It is the scarcity of allowances that will determine the investment in low-carbon technology,” she said. “The current price is simply reflecting the imbalance in supply versus demand — it is the oversupply that is the real issue.”

Stakeholder consultation on the six options closed on 28 February, and responses were analysed and presented to the stakeholder meeting on 1 March.

“The main messages coming from responses were broadly in line, from a whole spectrum of different stakeholders,” Deblock said.

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