The now massive oversupply of CO 2 emission allowances on the market must be addressed to avoid a collapse of the Emission Trading System (ETS) that was put in place to reduce CO 2 emissions. The European Wind Energy Association (EWEA) proposes the following two-step approach:
• Firstly: delay 2.6 billion emission allowances due to be auctioned from 2013.
• Secondly: remove these allowances from the market completely as soon as possible, to avoid speculation and provide price visibility for investors.
Intervention in the market for CO 2 emission allowances is needed because the economic crisis led to a massive price downturn for emission allowances that removed any incentive to reduce CO 2 emissions. The European Commission is by law entitled to propose such a delay. It has already taken action to avoid high prices in the past. It must now take action to avoid a price collapse.
Stopping the collapse:
The EU’s steel and cement sectors, and the EU’s power sector, are among those that have profited from the oversupply of emission allowances. The power sector bought cheap allowances from the EU’s heavy industries that received them for free; and did not need them due to the crisis. The power sector then passed the costs for buying these allowances to electricity consumers. The ETS, supposed to be a flexible carbon pricing system, has become a carbon subsidy for heavy industry players.
Rémi Gruet , EWEA’s Senior Regulatory Affairs Advisor for Environment and Climate Policy comments:
“Today the oversupply of emission allowances is proven, the solution exists and the European Commission can legally postpone the quantity of new allowances released on the market. There is no time to wait to take action to incentivise the move away from fossil fuels to renewables. This will benefit Member States by increasing auctioning revenues, as well as the EU industry, which is today increasingly relying on sectors which benefit from carbon pricing.”
[mappress]
Offshore WIND staff, July 11, 2012; Image: FreeFoto