Environmentalists reacted with dismay after new EU figures for 2013 showed that the flagship Emissions Trading System (ETS) was still over-supplied by 2.1 billion carbon allowances and data on carbon offsetting was partially withheld.
The ETS is supposed to drive carbon dioxide emissions reductions in Europe and help EU states meet the bloc’s climate targets. But at €5 per tonne of CO2, carbon allowances provide industry with little incentive to switch from cheap coal to more expensive alternatives, such as renewable energy, or gas.
Gas plants have been mothballed in countries such as Germany, which saw its emissions rise by 2% last year, despite an ambitious plan for decarbonisation.
“Due to the increase in coal use, it might be difficult for Germany to reach the national objective of reducing CO2 emissions 40% by 2020,” an EU diplomat told EurActiv. “We feel that in order to make coal less attractive, we need to strengthen the ETS.”
Germany is arguing for discussion in the EU to go beyond a market reserve mechanism proposed in the 2030 climate and energy package to cover deeper structural change, involving a reduction in the ETS’s cap mechanism.
The climate commissioner, Connie Hedegaard, welcomed an estimated 3% decrease in greenhouse gas emissions by firms participating in the ETS, in the new figures. “However, there is still a growing surplus of emission allowances that risks undermining the orderly functioning of the carbon market,” she said.
With emissions at 1.9 billion tonnes in 2013, the campaigning group Sandbag estimates that the market is currently flooded by over one year’s-worth of spare allowances.
Economic recession and an over-allocation of free credits to industry have both played a part in the problem, with carbon offsets from industry now taking up 1.2 billion credits of the current surplus.
Offsets allow smokestack industries to trade off their pollution by paying for certified emissions reductions elsewhere. But these have often involved scams and human rights abuses, only exposed by NGOs and journalists with access to the raw data.
This year, the Commission originally withheld the information on carbon offsets and, in the future, plans to stop publishing any data about the volume and type of offsets released into the scheme at all.
But after protests by environmental watchdogs such as Sandbag and carbon Market watch, a breakdown of the types of offsets in the ETS – significantly less than was previously published – appeared on 14 May this year.
“The Commission has given a huge gift to those industry lobbyists who routinely exaggerate the costs the EU ETS poses to them,” said Damien Morris, the head of policy at Sandbag. “By concealing the number of offsets companies have submitted to comply with the scheme, they have made it much harder to estimate the real costs these companies have faced in the past or are likely to face in the future. We call on the Commission to make the full data available as soon as possible.”
“In the absence of clear rules for companies to stay away from dubious projects that are tainted by human right abuses, we need transparency in order to hold companies accountable for their investment decisions,” said Eva Filzmoser, the director at Carbon Market Watch.
The ETS covers more 12,000 power plants and manufacturing installations in Europe, as well as intra-European flights.
Recent research published by Sandbag shows that Europe’s biggest emitters are all coal and lignite plants owned by PGE in Poland, RWE and Vattenfall in Germany, Drax and British Energy Gen in the UK, Public Power Corp in Greece, and Enel in Italy
With a turnover that reached around €90 billion in 2010, the EU's Emissions Trading System is the world's largest carbon market. Around 80% of it is traded in futures markets and 20% in spot markets.
The ETS aims to encourage companies to invest in low-polluting technologies by allocating or selling them allowances to cover their annual emissions. The most efficient companies can then sell unused allowances or bank them.
The scheme has proved influential. Although Australia has abandoned plans to begin carbon trading in 2015, Thailand and Vietnam have both unveiled plans to launch ETS’s, China is due to launch pilot schemes across several provinces this year, and India will ring the bell for trading on an energy efficiency market in 2014. Mexico and Taiwan are also planning to introduce carbon markets.
- 2014: India due to begin energy efficiency trading
- October 2014: EU to agree climate and energy package for 2030
- October 2014: Thailand due to launch a voluntary emissions market
- 2015: South Korea due to begin emissions trading
- 2020: Phase IV of ETS due to begin