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08/12/2016

Developing countries eye EU carbon quota sales to fuel growth

Development Policy

Developing countries eye EU carbon quota sales to fuel growth

Oak trees can collect and store many tons of carbon over generations.

[Simon Harvey/Flickr]

Reforming the European Union Emissions Trading System in 2020 could raise €80 billion for the fight against climate change, which could help fund climate adaptation in developing countries. EurActiv France reports

Most stakeholders agree on the need for a carbon market, but the question of how revenue from the sale of carbon quotas should be allocated is more controversial.

The European Commission wants to use part of the revenue, worth tens of billions of every year, to finance climate projects in developing countries.

According to Carbon Pulse, this could prove influential in the international climate negotiations in Paris this December. The European Commission will present its proposal for a 2020 carbon market reform on Wednesday 15 July. Last week, a Commission spokesperson said the text was “still being negotiated”.

“This is a significant challenge. We have to convince several countries to commit to a de-carbonised future before the COP 21 by guaranteeing their future resources,” a source told EurActiv.

Price fluctuations

The volatile nature of carbon prices means that predictions for the future are often unreliable. The European Parliament voted on Wednesday 8 July to establish a stability reserve for the EU ETS, so from 2019, quotas will be introduced or removed from the market in order to control the price of carbon.

>>Read: Czechs paving way towards carbon market reform

“This reserve will play a central role in ensuring that the price of carbon stimulates innovation in energy efficiency. It places the EU on course to attaining its objective of a 40% reduction in CO2 emissions by 2030,” said Belgian MEP Ivo Belet, the rapporteur on ETS reform.

The reform proposal must be ratified by the Council of Environment Ministers on 18 September and will enter into force in 2019.

According to some experts, restricting the supply of quotas on the market could push the price of carbon up to €15 per ton by 2020. Revenues from quotas sold, which currently represent only a minority of the total distributed, are worth only a few hundreds of millions of euros per EU member state.

€80 billion for climate action

In June 2015, Pascal Canfin and Alain Grandjean were asked by the French government to explore new methods of financing climate action. In their report, they stated that diverting a quarter of the revenue from the EU ETS to projects aimed at tackling climate change could raise €56 to €79 billion between 2015 and 2030. They based this estimate on a scenario where the price of carbon rises from €9 to €34 per ton by 2030.

Pascal Canfin and Alain Grandjean also argued that one third of this revenue should be allocated to developing countries.

>>Read: Report: fund climate action through European FTT (in French)

The two authors suggested that extra funds could be raised through the carbon offsetting mechanism. The aviation and shipping sectors are both required to use carbon offsetting systems. 

Background

The European Union has agreed a 2030 framework for climate and energy policy based on the following commitments:

  • to reduce the bloc's greenhouse gas emissions by 40% compared to 1990 levels, a binding objective which has to be broken down to individual member states based on their GDP per capita and may not be met by carbon offsets;
  • The use of carbon offsets to meet further emissions reduction commitments made in international climate talks;
  • A 27% renewable energy target that is binding at an aggregate European level but voluntary for individual member states;
  • An indicative target to increase energy efficiency by at least 27%;
  • Non-binding shale gas recommendations which could be made binding after a review in 2015;
  • A market reserve facility for the Emissions Trading System, with the power to withhold or release up to 100 million allowances;
  • and to implement the fuel quality directive by 2020, imposing a 6% reduction in greenhouse gas emissions from combustible fuels in the EU.