The EU ETS and industry Is Europe pulling its weight on climate - - PowerPoint PPT Presentation

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Sep 29, 2022 111 likes •256 views

The EU ETS and industry Is Europe pulling its weight on climate change? Conservatively estimated Europe has a 14% share of 2C compatible carbon space available over 1990-2050 (based on its share of 1990 population). It used up around

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The EU ETS and industry

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Is Europe pulling it’s weight on climate change?

 Conservatively estimated Europe has a 14% share of 2°C compatible carbon

space available over 1990-2050 (based on its share of 1990 population).

 It used up around 67% of its budget barely a third of the way through the

period.

 Even if the EU adopted a 30% climate target for 2020 and a 90% target for

2050 it would still exceed its carbon budget by around 30 billion tonnes

ver budget

1,701 65 104 168

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EU has beaten its 2020 climate target

79% 84% 3,957 4,240 4,522 4,805 5,088 5,370 5,653 5,936 70% 75% 80% 85% 90% 95% 100% 105% 110% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E Emissions (Mt) 1990 emissions baseline

EU27 emissions adjusted for ETS offsets EU27 GHGs incl aviation excl LULUCF EU27 20% target for 2020

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The new economic outlook

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Change in “baseline” emissions forecasts since 2008

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2008 GHG projections 2,210 2,205 2,199 2,193 2,185 2,173 2,157 2,135 2,116 2,082 2,068 2,054 2,043 2012 GHG projections 2,118 1,877 1,932 1,895 1,880 1,965 1,979 1,987 1,997 1,984 1,992 2,001 2,002

1,000 1,500 2,000 2,500 MtCO2e

2.2 Gt

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Implications out to 2020

 The EU ETS is a fundamentally less effective policy

carrying more than a year’s worth of allowances.

 The offset budget for the traded sector, is now

completely disproportionate to the domestic abatement obliged under the cap.

 The resulting carbon price is too low to encourage

even the cheapest forms of domestic abatement out to at least 2020 (unless we intervene).

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Implications for Phase 2 (2008-2012)

 The drop in demand over Phase 2 will leave the Phase 2

caps “long” by around 800Mt.

 By all accounts this is a larger volume than any

abatement the carbon price may have delivered over the Phase.

 This implies that Phase 2 of the EU ETS threatens to

have a net negative environmental effect, cancelling out emissions reductions the recession and other climate polices delivered by banking them forward for future use.

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Manufacturing sectors in Phase 2

100 200 300 400 500 600 700 800 2008 2009 2010 2011

MtCO2e

Net position EU manufacturing sectors

Surplus Industry emissions Free allocations

594

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Manufacturing company surpluses in Phase 2

50 100 150 200 250 300 350 222 80 89 38 38 50 71 50 20 93 123 41 35 20 18 17 17 13 11 11 MtCO2e Phase 2 Surplus * Phase 2 Emissions

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Future costs?

1 2 3 4 5 6 7 8 9 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 MtCO2e

Cementos Portland

Surplus EUAs Emissions Allocations

17.2

5 10 15 20 25 30 35 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 MtCO2e

Tata

Surplus EUAs Emissions Free allocations Free allocations and carryover

42.2

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Future costs have been radically reduced

 The ETS compliance costs for manufacturing sectors are a tiny

fraction of what they were expected to be because:

 The market price of carbon is less than a third of the €30 average

expected

 Surplus Phase 2 allowances will largely buffer them from this cost.

 Many manufacturing sectors have received additional free

allowances because they are defined as exposed to carbon leakage; however:

 This assessment was performed under an obsolete €30 carbon price

assumption

 It did not take the protections afforded by standard benchmarked

allowances or Phase 2 surpluses into account

 It did not exclude countries with comparable carbon pricing schemes

from the trade intensity calculation

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Conditional carbon price protections for industry

 Until such a time as the cap is tightened to create the €30 carbon

price in the leakage assessment, many sectors are due to receive free Phase 3 allocations on false grounds.

 Manufacturers’ should stop obstructing cap reform if they expect

their current free allocation privileges to be maintained AND/OR expect to receive full compensation for their indirect ETS costs.

 EU governments awarded industry billions of Euros in state assets

to protect them from carbon leakage threats which never materialised in Phase 2. To prevent good money flowing after bad, past surpluses and the evolving carbon price should be taken into account when:

 the carbon leakage list is reviewed, and  State Aid compensations for electricity intensive industries are considered.

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General recommendations

 Backload allowances as a temporary measure to

counteract a surge in supply and prepare the market for a follow up structural intervention.

 Cancel these allowances as part of a broader package of

structural measures, that include adopting a 30% 2020 climate target, and protections against future economic shocks.

 Change the long term trajectory of the ETS, and establish

an ambitious Phase 4 budget under an ambitious 2030 target.

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