[CORRECTION: set-aside proposal supported by Hedegaard.]
The EU's climate action commissioner cautioned the European Parliament about the temptation to over-regulate the carbon market, warning about the dangers of political meddling.
In a bid to tackle Europe's depressed price of carbon, MEPs want to set aside a significant amount of allowances from the EU’s emissions trading system to sustain price levels as of 2013.
But Hedegaard, who pushed the set-aside rules before Parliament and detailed proposals in several papers, cautioned MEPs against taking the initiative a step further by introducing a carbon price floor, like is being done in the UK.
"If you start to toy with that idea, then you will also have a ceiling and very soon you will not have a market-driven system," Hedegaard said. "And we think it’s important to have a market-based system."
Europe's economic crisis has pushed down carbon prices to around €7 per tonne of carbon emitted, way below the €25 to €40 considered necessary to have a significant influence on business decisions.
But according to Hedegaard, economic crises are part of life and markets should be left alone. "None of us should be surprised when there is a huge crisis in Europe, and production is coming down, it is no wonder then that in a market-based system, that demand will come down and therefore also the price. That is how the market works."
"We will be in for so much more trouble if we had a politically-regulated system all the time."
UN report attacks fossil fuel subsidies
Hedegaard shared her thoughts on the carbon price floor as part of a wide-ranging interview with EurActiv on her contribution to the UN Global Sustainability Report, which was presented in Addis Ababa earlier this week (30 January).
Among other things, the UN report blamed fossil fuel subsidies for distorting markets, and increasing greenhouse gas emissions while slowing poverty alleviation. At a global level, fossil fuel subsidies amounted to more than $400 billion in 2010, whereas renewable energy only received between $60-and-$70 billion, according to the report.
"Last year the oil bill to Europe was €315 billion," Hedegaard said, a 40% increase on the previous year.
"It’s almost the size of the Greek debt."
Addressing this challenge, she said, "would not only be good for climate and for energy security, it would also benefit our economy."
2030 target would provide certainty for renewable investors
Taking Denmark as an example, Hedegaard said a big pension fund last year decided to invest substantial money into an offshore wind farm, which will supply 400,000 households with clean electricity.
"It’s creating loads of jobs in some rather remote areas where there are not that many jobs being created for the time being," she said.
In Europe, Hedegaard admitted that the current economic crisis was putting renewable subsidy schemes under strain, with Italy and Spain recently cutting down their national feed-in tariffs for renewables.
But she said this should not deter Europeans from their collective goal to meet 20% of their energy needs with renewables by the end of the decade.
"I think that’s why we need milestones, why we need targets for renewables as we have for 2020. That’s why we also need now to define the milestones for 2030," she said adding that such longer-term targets would help by providing certainty for businesses to invest.
"I think we should have it now," she said when asked about a 2030 renewable energy target, currently resisted by a majority of EU member states.
"If you are – say – a pension fund, and you need to decide today whether you want to put your money in a new offshore wind farm, you need to know the conditions, you need to know whether there is predictability."
This is why she said the EU executive has insisted that Italy and Spain do not cut their feed-in tariff retroactively. "The Commission’s recommendations to member states have been very clear: don’t mess with this in the short term. … [Y]ou should take very much care not to legislate retroactively or change the conditions retroactively."
"This is not just an environmental or climate perspective, because what happens if you do this, then investors instead look to other regions and put their money there."
"We will very soon be at crossroad where Europe has to decide: Do we want to create jobs in the renewables sector or do we want to give away a stronghold we have had to, say, the China’s or some others."