EU ETS: a decade of co-existence. Peter VIS EU Visiting Fellow, St. Antony s College University of Oxford

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1 EU ETS: a decade of co-existence Peter VIS EU Visiting Fellow, St. Antony s College University of Oxford

2 EU uses a range of instruments Market-based measures Regulatory measures & standards (e.g. biofuels & Ecodesign) & bans (e.g. incandescent light bulbs) Voluntary agreements & aspirational targets Mainstreaming into other instruments, such as Research funding, or the Common Agricultural Policy Book forthcoming EU Climate Policy Explained

3 What do the critics say? It s wrong to trade on the back of the environment It s ineffective as it hasn t changed behaviour The incentive it creates is too weak, as there have been overgenerous allocations, lower economic growth and offshoring It doesn t provide enough certainty for investors (unlike regulation or subsidies that can be counted on) It s only European (those outside Europe do nothing)

4 Quotes The Emissions Trading System is sinking fast The ETS is unreformable and should be scrapped. Corporate Europe Observatory Green NGOs Ladies and gentlemen, let s talk real: the ETS is bust, it s dead Johannes Teyssen, CEO, E.on. in a global competitive market, EU industry is faced with costs unmatched by other economies. Confederation of European Paper Industries

5 What can it do? Ensures greenhouse gas reduction targets are met cost-effectively Reflects scarcity (Low price = low impact; high price = high impact) So far have given moderate incentive for technological innovation (e.g. number of patents increasing forthcoming DECHEZLEPRETRE), fuel saving, investment in alternative technologies Generates revenues for financing ( 3.6 billion of auctioning revenues in 2013)

6 Progress to 2020 targets? 1. Greenhouse gas reduction of 20% in 2020: In 2013, 19% below levels of 1990 (& with additional measures already in place, expected to over-achieve on 2020 target) 2. Energy Efficiency improvement of 20% compared to a business-as-usual projection made in 2007 (not legally binding) Expected to miss: the latest estimate is that we will get to 17%, possibly between 18%-19%, but not to 20%

7 Progress to 2020 targets? 3. RES targets (legally binding per Member State) EU as a whole on its trajectory, but the compliance curve gets steeper as decade progresses, Commission considered less optimistic outlook for 2020 in March 2013 BEFORE current oil price falls Planned (blue) v. estimated (red/dotted) trend in EU renewables

8 EU ETS Environmental outcomes are being met (an instrument welladapted to meeting pre-determined objectives) Practically full compliance (meaningful penalties) Practically no discernable effect on competitiveness (see next slide) due to inter alia free allocation of allowances Has preserved business and political support (businesses are left to decide how to respond)

9 Impacts & effectiveness CECILIA 2050 (funded by EU s FP7 Research Programme) conclusions: If the European countries would not have had introduced in the late 1990 and early 2000 years Environmental Tax Reforms, the EU ETS and subsidies for renewables, the CO2 emissions of the member states would have been in the year 2008 up to 12% - 13% higher than historically observed. If these climate policy innovations would not have been installed in Europe, we would have had probably lower but certainly not higher figures for GDP and employment in most European countries.

10 Renewable & efficiency targets Belt, braces and elastic waistband Both would, to some extent, be enhanced by carbon pricing Here we are making choices Risks imposing additional costs on businesses and households (and we see the push-back effect when costs are too high) We are actually pursuing them for reasons of energy security, trade balance and jobs across the EU, including its periphery

11 European Council on 2030 Simplifying: there s only going to be GHG targets for 2030 (for ETS and per Member States for the rest of the economy) No national renewable targets, nor efficiency target (though nice words on both; ambition levels informed by modelling) ETS remains the key instrument. There s even a timid determination to fix the problem of oversupply There was agreement on the principles of redistribution of revenues (to make acceptable)

12 Hoovergate controversy Problem is that vacuum cleaners with more power are advertised as better, but after a certain point, it doesn t enhance the hoovering capability (more heat, more noise, more energy consumption, but not more dust) So Eco-design Directive has stepped in Risk of over-regulation: antagonism & imposing certain solutions & costs (similar case for incandescent light bulbs) Do we need to get into the nooks & crannies? Or is inertia such that it s right to regulate? Hoovers work on electricity no need to double regulate if carbon pricing is passed through in price of electricity

13 Policy recommendations If you choose market instruments, choose them decisively & give them room to work Flanking measures, such as energy efficiency measures or support for renewable energy, to be carefully crafted. Energy efficiency in non-electric appliances. Eliminate fossil fuel subsidies: more widespread than believed, including in form of tax breaks for North Sea oil extraction, for example. Coal is subsidised in Spain & Poland. Company car taxation provisions in several e.g. Belgium Earmark revenues for research, development & deployment

14 Performance