“We need to take something like one billion or so allowances out of the ETS to recalibrate us back to the position we were in before recession,” said Graeme Sweeney, Shell's executive vice president for renewables, hydrogen, CO2 and power.
“To restore the baseline of ambition, decisive action is needed now,” he went on. “The cap and emissions should be tightened [with] a set-aside of allowances from phase III" of the ETS, which begins in 2013.
However, a compromise proposal agreed by all parties in the European Parliament is expected to be passed, which only calls on the EU executive to take action over the carbon price collapse by the end of the year.
“From a green perspective we would have liked some clearer text with a number in it asking for set asides but unfortunately that was not possible,” the Dutch MEP Bas Eickhout (Greens) told EurActiv.
If the EU does not act, Shell could begin orientating itself more towards areas in which a ‘carbon floor price’ – or state-guaranteed minimum price for CO2 – is in effect.
“The UK’s approach is very interesting because they already have a carbon floor price,” Sweeney said. “My view is that we have to be quite pragmatic so we’ll be looking to those jurisdictions where the conditions are most favourable and trying to execute there.”
Sweeney told EurActiv that setting “a reserve price at auction” in the ETS’s Phase IV, which begins in 2020, would provide a longer-term solution and give confidence to investors that the Commission stood behind its flagship scheme.
“Funnily enough, Shell and the Greens are putting the same agenda for different reasons, but the outcome is more or less the same,” Eickhout said.
Emissions trading scheme
The ETS is the world’s largest carbon trading scheme, in which more than 10,000 installations buy credits to meet their emissions cap, or sell them to profit from carbon savings.
The idea was to reward less carbon-intensive industries while providing incentives for low-carbon investment, and as carbon prices hit €30 a tonne in July 2008, this seemed achievable.
But a cocktail of recession, over-allocation of free credits and uncertainty over future climate targets caused carbon prices to plummet to around €7 a tonne, a sum too low to make clean energy investment competitive.
Parliamentary lawmakers responded with amendments to the Energy Efficiency Directive.
Anders Nordeng, a senior analyst for Thomson Reuters Point Carbon, said that no matter how the Industry, Technology, Research and Energy (ITRE) committee voted, implementation of a set-aside measure would face strong opposition.
“In the current crisis situation, there is little appetite for those sorts of measures, and even the Danish presidency has come out with mixed signals,” he told EurActiv. "They don’t seem eager to push this.”
“There seems to be a concern about the legitimacy of the system, and a perception of system failure,” he added.
BusinessEurope, the European employers' lobby, has resisted the set-aside proposals partly because of the influence of heavy industries which fear increased production costs, Nordeng said.
But companies such as Shell have broken ranks, and last week a progressive energy companies climate alliance was launched.
A recent lobbying letter to MEPs which posited that “BusinessEurope’s members on balance [our italics] urge you to vote against the [ETS setaside] proposals” led some to speculate that the group was facing an internal rebellion on the issue.
Folker Franz, BusinessEurope’s environmental spokesperson, denied this. “It just acknowledges the fact that we did have a lot of discussion on this, and we still do, and of course no-one has ‘the masterplan’ on climate change,” he said.