2017年-CEPS欧洲政策研究中心_Scanning_the_Options_for_a_Structural_Reform_of_the_EU_Emissions_Trading_System_68页_1mb

Summary of Scanning the Options for a Structural Reform of the EU Emissions Trading System

Core Content

This paper provides an evidence-based analysis of potential structural reforms for the EU Emissions Trading System (EU ETS) to address its current shortcomings and improve its functionality in the context of long-term climate goals. The authors argue that a comprehensive reform package is necessary to ensure the EU ETS becomes a credible and effective tool for reducing greenhouse gas (GHG) emissions, while also addressing the risk of carbon leakage.

The paper outlines three main reform packages, each targeting different aspects of the EU ETS:

1. Stabilising the market for emission allowances
2. Adding flexibility to allocations in view of a long-term target path
3. Enhancing the functionality of the EU ETS

The reform options are evaluated in terms of their potential to address the supply-side rigidity, the imbalance between supply and demand, and the low carbon price, which has hindered investment in low-carbon technologies.

Main Points

1. Current State of the EU ETS

• The EU ETS is the cornerstone of EU climate policy, aiming to achieve cost-effective reductions of GHG emissions in covered sectors.

• The system is designed to reduce emissions by 21% by 2020 and 43% by 2030 compared to 2005 levels.

• A long-term target of an 80–90% reduction by 2050 is proposed by the European Commission.

• Supply and demand imbalance: The EU ETS has experienced a significant surplus of allowances, which is currently equivalent to more than one year's emissions of the sectors covered.

• Carbon price decline: The surplus has led to a low carbon price, undermining the market's ability to reflect the scarcity of allowances and reduce emissions effectively.

• Free allocation: Free allowances are a major component of the system, with about 40% of total verified emissions covered by them. The current system uses historical production levels to determine these allocations, which has contributed to inflexibility.

• Risk of carbon leakage: Energy-intensive industries are particularly concerned about the risk of carbon leakage, i.e., the relocation of production and investment to countries with less stringent carbon regulations.

2. Current Reform Proposals by the European Commission

• Backloading: The postponement of 900 million allowances to 2019 and 2020 to align with expected demand.
• Market Stability Reserve (MSR): A rule-based mechanism to manage market surpluses by storing or releasing allowances based on surplus levels.
• More ambitious reduction path: Increasing the annual reduction factor from 1.74% to 2.2% after 2020.

3. Reform Package 1: Addressing Auctioning Rigidity and 'Resetting' the Market

• Objective: Stabilise the carbon market by addressing supply-side inflexibility.
• Key Options:
  • No reinjection of withdrawn allowances: Withdrawn allowances from the backloading procedure are not returned to the market but are instead added to the MSR.
  • Early start of the MSR: Implementing the MSR earlier than the Commission’s proposal (2019 instead of 2021) to address the accumulated surplus more effectively.
• Impact: These measures aim to prevent further surplus accumulation and increase the stringency of the carbon market, which is essential for delivering price signals up to 2050.

4. Reform Package 2: Adding Flexibility to Allocations in View of a Long-Term Target Path

• Objective: Improve the flexibility of free allocation and align the system with long-term emissions reduction goals.
• Key Options:
  • Long-term emissions target path: A more ambitious and flexible reduction trajectory that allows for dynamic adjustments in the supply of allowances.
  • Flexible free allocations: Allocating free allowances based on updated benchmarks and current activity levels, rather than historical data.
  • Auction volume adjustment: Adjusting auction volumes to reflect the difference between the long-term target path and free allocations.
• Impact: This package reduces the need for cross-sectoral correction factors and enhances the system's ability to respond to economic and technological changes, thereby lowering the risk of carbon leakage.

5. Reform Package 3: Further Enhancing the Functionality of the EU ETS

• Objective: Improve the system's resilience and effectiveness through additional measures.
• Key Options:
  • Targeted allocation of free allowances: Addressing the exposure of energy-intensive industries to international trade and process emissions.
  • Domestic offsets (Art 24a): Utilising domestic credits from non-ETS sectors to support emissions reductions.
  • Different sectoral treatment: Allowing for differentiated emission reduction paths across sectors.
  • Inclusion of upstream distributors: Expanding the scope of the ETS to include upstream fuel distribution.
  • Innovation Reserve: Extending the NER 300 program to support targeted innovation in low-carbon technologies.
  • Governance improvements: Establishing an authority to monitor and maintain market integrity, similar to the Australian Climate Change Regulatory Authority.

6. Global Context and Lessons from Other Carbon Pricing Mechanisms

• The paper compares the EU ETS with other carbon pricing systems, such as the Regional Greenhouse Gas Initiative (RGGI), Western Climate Initiative (WCI), and Chinese pilot schemes.
• These systems demonstrate different approaches to market stability, flexibility in allocation, and sectoral coverage, which could inform the design of the EU ETS.

Key Information

• The EU ETS has successfully created a functioning market for over 11,000 installations and 3,000 aircraft operators.
• However, the system's inflexibility has led to an oversupply of allowances and a low carbon price, which undermines its effectiveness.
• A structural reform must consist of a package of measures that work together to stabilise the market, increase flexibility, and address carbon leakage.
• The proposed reform options include the early implementation of the Market Stability Reserve, more ambitious emissions reduction targets, and improved free allocation mechanisms.
• The use of domestic offsets and targeted innovation policies could also play a key role in the reform.

Conclusion

The paper underscores the need for a comprehensive and coherent reform of the EU ETS. It highlights that no single reform option is sufficient on its own and that a package of reforms is necessary to achieve a credible and effective emissions trading system aligned with long-term climate goals. The reforms proposed aim to improve market stability, enhance flexibility, and reduce the risk of carbon leakage, ensuring the EU ETS can deliver meaningful environmental outcomes.