EU ETS structural reform - Frédéric Dinguirard

www.theshiftproject.org

EU ETS Structural Reform

Dec. 2014 – Frederic DINGUIRARD

Frédéric Dinguirard,Project [email protected]


EU long term ambition to tackle climate change

2050 Roadmap

2014 Dec. 11thwww.theshiftproject.orgEU ETS Structural Reform

-80%(baseyear 1990)

EU Climate and Energy framework:Energy Efficiency – Renewables - ETS

Overlapping and complementary


A price on carbon is needed to trigger low-carbon investments and innovation


Low-carbon

Investments

&

Innovation

Cap

Supply Demand

Trade

EU ETS: a Cap and Trade toput a price on carbon

2014 Dec. 11thwww.theshiftproject.org

Principle:

Polluters pay(with exceptions, compensations,

subsidies, state aids, thresholds, free allocations…)


CO2

But currently……we are at a standstill


What is the appropriate price for carbon?


30 €100 €

NeverAgain

ASAP 2030

6 €

time

How to obtain that price?

Reduce the supply of allowanceswill lead to what price?


30 €100 €

2014 ASAP 2030

6 €

Supply

GHG emissions=

Demand

RenewablesEconomicDownturn EE&

Others….

Allocation

Price

A too generous supply, however:

The price is not coupled to quantities in circulation.

Current reform: a reserve to reduce the supply


30 €100 €

2014 ASAP 2030

6 €

Supply

RenewablesEconomicDownturn Others….

ReducedAllocation

The Market StabilityReserve

GHG emissions=

Demand

Price

We could have them all: a rebalanced market, a fat reserve but still low carbon price


30 €100 €

2014 ASAP 2030

6 €

Supply

RenewablesEconomicDownturn Others….

ScarcedAllocation

GHG emissions=

Demand

A fat reserve and reduced supply.

Rebalanced supply and demand.

Price Low Prices

Our proposal: an auction reserve price


30 € 100 €

NeverAgain

ASAP 2030

6 €

Still market Price but… at a certain price

Price Support

MSR-Bag(cap neutral)

Overlap inpeace !

Discretionary price management mechanism? NO!


• Predictable Price Trajectory

• Stable

• Rule-Based

• Some fine-tuning by the European Commission from time to time, as usual

30 €

100 €

2021 2030

How not to hurt competitiveness?


Currently, free allocation =

reduced carbon costs

but few to no emission reductions

100% EU-based domestic projects (no international credit) =

reduced carbon costs

and massive emission reductions

Both: Competitiveness and cc mitigation

Closer to a Tax rather thana quantity-based mechanism? No!


• Similar price management mechanisms are in place in other “quantity-based mechanisms”: o California, Quebec, some Chinese Pilot ETS…

• The market would still determine the price, above a certain price

Impact on Member States budget


Increase in auction revenues

Impact on relatively low GDP MemberStates


Increase of the increase in auction revenues, thanks to EU 2030 climate framework redistribution mechanism and associated climate finance

+

Impact on relatively low GDP MemberStates with CO2 intensive energy mix


+ +

• EU 2030 climate framework redistribution mechanism+ associated climate finance= Increase of the increase in auction revenues

• Very high carbon price could trigger low-carbon innovative technologies (CCS…)

Conclusions: move the ETS from« Quantity Only » mechanism to a « Price Also »


An appropriate auction reserve price combined with domestic projects could :

Trigger low carbon investments

Coordinate overlapping climate policies in an efficient manner

Ensuring fairness among all Member States

In a simple, predictable, and stable way

Thank you for your attention!

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EU ETS structural reform - Frédéric Dinguirard