Environmental Engineering Reference
In-Depth Information
The years since the launch of the climate change package (understood to mean
the emissions reduction targets for 2020, the EU ETS and the Decision with
country-allocated targets for diffuse sectors) have revealed two fundamental issues.
First of all, the EU ETS has proven to be effective in bringing down emissions,
thanks to the structure of the regulatory instrument (
). However, the
economic crisis and its consequences for production and demand in the economy
have resulted in the prices per tonne of CO
2
plummeting and thus weakened one
of the main drivers envisaged by the regulator: a technological shift towards a
low-carbon economy, which is the second main goal (albeit implicit) for which this
framework was de
“
cap and trade
”
ned.
The second fundamental
culty of achieving reductions in
emissions in the diffuse sectors, particularly in transport and building. In these
sectors, the lack of concrete commitments by stakeholders and the technological
dif
issue is the dif
culties in introducing low-carbon technologies jeopardise progress towards the
decarbonisation of the economy beyond the 2020 horizon.
An analysis focussed on emissions allowance trading shows that
the basic
characteristic of the end of the previous stage (2008
2012) and beginning of this
third stage is a slump in the price of CO
2
emissions allowances, as a result of the
major economic crisis, which has reduced industrial activity and the demand for
allowances. This is further compounded by the increasing penetration of renewables
as a result of specic support schemes (Fig.
1
).
Despite the fact that the emissions allowance market is working smoothly (bear
in mind that the emissions target is being met and that the price is in keeping with
the basic factors), many analysts claim that the price of CO
2
in the European market
has fallen so low, and at the same time shown such a high level of volatility, that it
is no longer providing an incentive for the investments required to decarbonise the
economy (since January 2013, the price of the EUA has remained below
-
5/tonne
CO
2
). In fact, without the banking effect (i.e. companies with the highest emissions
taking advantage of the current low prices to buy allowances as an optional hedging
mechanism in case CO
2
prices soar after 2020 for any reason), the price of CO
2
might well have dropped to almost zero.
In the light of this situation, in July 2012 the Commission published a draft for
the amendment of the auctioning rules for the EU ETS, according to which the
allocation of a particular number of emissions allowances would be postponed. To
be more speci
€
c, the Commission proposed reducing the number of emissions
allowances to be auctioned between 2013 and 2015 by 900 million and increasing
by the same amount the volume auctioned at the end of the third stage (this is
referred to as
in EU jargon).
By implementing this postponement strategy (which basically means changing
the slope of the curve for maximum emissions allowed in the early years at the
expense of increasing the maximum emissions allowed at the end of the period), the
European Commission seeks to restrict the offering of emissions allowances in
short-term auctions, thus raising the short-term price. It will then offer more
allowances at the end of the period, when demand is expected to have recovered.
“
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