ETS lead MEP: ‘EU’s carbon market is like a car without fuel’

EXCLUSIVE/ The European Union’s carbon market is like a broken-down car without any fuel, the Scottish MEP steering the debate on reforms of the EU’s Emissions Trading System (ETS) has told EURACTIV.

“It’s not going anywhere, that’s evident, it’s not driving forward innovation, it’s not driving forward change, it’s not delivering against our ultimate climate change targets,” Ian Duncan, of the European Conservatives and Reformists (ECR) group, said.

The rapporteur on post-2020 ETS reform said he expected free carbon allowances for industries to be the “beating heart” of the debate in the European Parliament. He also cast doubt on European Commission figures and pricing used in drafting the changes to the cornerstone of the bloc’s fight against climate change.

The ETS is the world’s biggest scheme for trading emissions allowances. Regulated businesses measure and report their carbon emissions, handing in one allowance for each tonne they release. Permits can be traded on the markets as an incentive for companies to reduce emissions.

MEP Ian Duncan (Conservative Party) was chosen as rapporteur on the post-2020 reforms of the ETS on 16 September. He spoke to EURACTIV’s Deputy News Editor, James Crisp. You can listen to the interview on Soundcloud, or read the transcript below.

Ian, you’ve only been in the European Parliament a year and now you are lead MEP on the reform of the Emissions Trading System. Quite a quick rise, isn’t it?

Yes, I think it is. One of the things I’ve done since joining the Parliament is to be very focused on energy and climate change, and a lot of dossiers that have gone through the Parliament such as the Market Stability Reserve (MSR) reform. I was my group’s shadow rapporteur on that, I was in Lima [for UN climate talks], I will be in Paris [for the UN Climate Change Conference],  I’ve been working with the Maldives, with Bhutan, and others, so I think that stood me in good stead.

You mentioned the MSR. You backed a start date of 2017, but 2019 was ultimately agreed as the start date. What does that say about the tensions in the Parliament you will have to navigate?

It says we are only going to make progress if we recognise compromise for what it is – a way of getting us forward. I pushed for 2017, I pushed very hard for that. I thought I had alliances that would have brought us there. In the end, I thought it was still better to go to 2019 than the alternative. I think the key thing to take away from this is that I believe in listening and I believe in getting a deal done.

You’re a member of the European Conservatives and Reformists (ECR). As well as the Brits, the other big faction in that group is the Poles, who have well-documented concerns over ETS…

I think in truth almost all of the groups have divisions, and almost all have representations which have very striking views on the need to look at the industry base, upon carbon leakage, upon the need to secure a workable outcome for their nations. I think the key thing here is to make sure those voices are heard. We can’t make progress by turning our eyes away from the East. We need to have them as part of the discussion. What emerges from that will depend on the compromises that we drive forward. Nonetheless, all must be part of the debate. I am very open to any representation, as I am sure my shadow colleagues will be, from whomever believes they need to have a voice in the discussion.

Do you buy into the idea of carbon leakage? [Carbon leakage occurs when businesses transfer production to countries with weaker restraints on greenhouse gas emissions because of lower costs].

At the moment, we are not seeing a great deal of evidence but with carbon prices at about €8 a tonne, it is no surprise we are not seeing a swathe of carbon leakage. The test is if the ETS approach leads to driving up the carbon price. Then I suspect there will be a tipping point when we do see carbon leakage. When that comes remains to be seen. It’s one of those Catch 22 situations. We will only get it when it [the market] works.

+Pricing and figures+

The Commission’s proposal is based on €25 a tonne. Where does that figure come from? Do you accept that figure?

It’s a very good question. In reality, I am not quite sure where they get that figure from. What we do know is what the figure is today. I was trying to look at how the Commission derived a number of proponents of its approach, and I think at the moment a lot of it isn’t really that soundly based. When you step forward, and look forward to the horizon, it is very hard to be certain of any of these figures.

Do you think it is wishful thinking on behalf of the Commission?

I think it might well be if you look at what innovation needs to appear. If you look at carbon capture and storage (CCS) – and I know it is not discussed as much – but if you seriously wish CCS to make progress, the carbon price needs to be upward of €70 to €80. And then, if you look at all the different innovations, and what they need to kick into play as a serious operator…

But CCS is just too expensive isn’t it?

At the moment I am not seeing any clear costing of how CCS could work. I want to explore that in the future. But there’s no doubt that if we want to have any carbon or hydrocarbon in the future, then CCS must be part of the debate.

+Broken market+

How do we stop the carbon market breaking again? I suppose we need to fix it first…

The carbon market now is a bit like a car without any fuel. It’s not going anywhere, that’s evident, it’s not driving forward innovation, it’s not driving forward change, it’s not delivering against our ultimate climate change targets. Frankly, I think trying to stop it breaking again in the future is very much something for another day – let’s try and get the bloody thing working again now.

Where do you foresee the tensions in the debate in Parliament?

I think it will almost certainly be where we saw them in the MSR debate. I wouldn’t like to speculate too much further than that – it is a different proposal – but it should certainly serve as a guide.

Is an emission target of at least 40% reduction in greenhouse gases by 2030 really ambitious enough?

I know there’s a debate around that. It’s certainly ambitious. Is it ambitious enough? The test is not the target you set, it’s the target you deliver against. That’s the challenge.

Do you think there are too many industries that have been selected for free carbon allowances in the Commission proposal?

I suspect that will be the beating heart of some of our serious discussions. I’ll probably say no more on that point. That’s for serious discussion between the shadows, the committee and the wider Parliament.

+UN Climate Change Conference+

How do you see things playing out in November in Paris at the UN Climate Change Conference?

Because the new Parliament and the new Commission came into place [last year] we did not make the kind of progress I’d anticipated as an observer. Everyone has been in place longer now, and we have to be far more serious about our ability to negotiate and drive change. But we must also be much more willing to listen to those from developing nations or from funders, and be more open. We can’t just keep standing on a pedestal pointing the way forward, and look behind us and see that no one is following us.

It seems clear now that there won’t be a binding target to cap global warming. Does that give the EU a role in driving through a strong enough architecture for the deal?

This is where it is going to become challenge. I think the EU’s got to be very sophisticated in its negotiations. It can’t just stand on its moral high ground and shout “forward,” because it has to be able to do so in a way that’s progressive, that recognises the global challenges. I think at the last negotiations [in Lima], that wasn’t always as clear as it should have been.

Subscribe to our newsletters