Cap and trade roller coaster

Emissions trading schemes still feel contrived and doomed to fail in my view. A good old fashioned recession has been the most effective way to curtail carbon emissions to date as a recent European Union analysis illustrates.

The best way to reduce and keep emissions down is to replace fossil fuel plants with renewable energy technologies. So doesn't it make sense to invest heavily in renewable energy technologies to help pull us out of the current economic downturn? (GW)

EU CO2 emissions fell by 11% in 2009

EurActiv

April 2, 2010

Emissions from industrial installations covered by the EU's carbon trading scheme fell by 11% in 2009 on the back of the global downturn, according to new data published by the European Commission yesterday (1 April).

Background

The EU's emissions trading scheme (EU ETS) has since 2005 required some 10,000 large industrial plants in the EU to buy and sell permits to release carbon dioxide into the atmosphere.

The first trading phase saw a gross over-allocation of permits, sending carbon prices tumbling. The number of permits was slashed by 10% for the second phase between 2008-2012, but the global downturn and an accompanying drop in production have pushed down prices.

To correct the problems, a revision of the scheme for the third trading period starting in 2013 was agreed in December 2008, tightening the emission cap to 21% below 2005 levels. Under the revised scheme, electricity producers will need to buy 100% of their CO2 emission permits at auction by 2020.

Total industrial emissions amounted to 1.887 billion tonnes in 2009, according to estimates by market analyst Point Carbon. This is an 11% drop on the previous year, confirming that the recession stifled industrial production and power demand even more last year than it did in 2008, it said.

The figures are based on the Commission's preliminary figures on installation-level verified emissions in the EU emissions trading scheme (EU ETS) as well as estimations for countries that are yet to report on their emissions. Portugal, Bulgaria, Cyprus, Malta and Norway had not yet submitted their data to the EU executive.

The significant drop meant that emissions were in fact below the cap set under the EU ETS, which is designed to help the EU meet its climate change commitments.

Indeed, European companies were left with surplus emission allowances worth close to 80 million tonnes of CO2, Point Carbon said.

Environmentalists have seen the impact of the economic crisis on emissions as a sign that the cap under the EU ETS is not stringent enough. As the surplus allowances can be banked and used in the next trading phase starting in 2013, they fear that the recession will continue to drag down carbon prices for years afterwards (EurActiv 05/03/10).

"This new information makes it clearer than ever that the EU must increase its climate ambitions. Caps are now sitting above emissions and we are already over halfway towards meeting the caps that have been set for 2020," said Bryony Worthington, director of climate campaign group Sandbag.

However, Kjersti Ulset, head of European carbon analysis at Point Carbon, said the emission reductions were to be expected and emissions would continue to grow next year.

"This was more or less what the market expected. I don't think there will be much of an impact on the emissions trading scheme as such," she said, adding that if anything, the publication of the data had brought certainty to the market.

"A lot of market participants feared very low emissions in 2009, but now they've seen the 2009 numbers and there's less uncertainty on the market," Ulset said.

Speaking to EurActiv the afternoon after the release of the data at midday, Ulset said prices of EU allowances had risen by 20 eurocents as a result.

The Commission will publish the complete data next month.

Next Steps

• 15 May: Complete data expected to be made available.