
Breadcrumbs
Buckle Up! Tighten the cap and avoid the carbon crash
Three years into Europe’s Emissions Trading System second trading period – how is it performing? This report provides a comprehensive assessment of the environmental outlook of the ETS, covering permit allocations, oversupply, companies use of offsets and projected effectiveness of the cap
Highlights
77%
of total installations in the ETS are currently in surplus
855Mt
excess carbon permits accruing to industry by end of Phase 2 of which 672Mt will carry forward to Phase 3
1.2Gt
additional permits in Phase 3 due to industrial surpluses pushing up the historical baseline
52%
of offsets are surrendered for profit by installations holding a surplus
1.7Gt
Sandbag’s recommended set-aside to correct for the full effects of oversupply in Phase 2
4.6Gt
would be saved against businessas-usual 2008-2020 emissions if Sandbag’s recommended set-aside is permanently cancelled
About
This report finds that the huge overallocation to industry in Phase 2 has left a double legacy undermining the effectiveness of the scheme to 2020 and beyond: a carryover of permits banked into Phase 3 and an inflated baseline which affects the starting position of the declining carbon cap beginning in 2013. The result: a likely oversupply that grows to an eye-watering 1.9 billion tonnes through to 2020, equivalent of a year’s worth of carbon permits in the scheme.
Sandbag recommends a number of measure to save the ETS from redundancy: that the European Commission propose set-aside of 1.7 billion permits before 2013, as well as opening up the Directive by 2015 to adjust the cap.
Executive summary
The ETS is currently doing very little to drive abatement in Europe
The low prices reflect a huge gulf between allocations and the actual level of emissions over the last three years owing principally to the impacts of the recession.
Several of the above recommendations rely on additional information about compliant installations and their activities being available to the Commission, to participants and, ideally to outside observers. We recommend the following installation level information be mandatorily reported to the Commission and published on the Community Independent Transaction Log (CITL):
- Precise annual information on free waste gas EUA transfers between installations.
- Latest information on the largest legal entity owning a majority share in an installation.
- Complete “NACE code” information on the activity of each installation refined to 4-digit level.
This information will help to disaggregate electricity generators from other combustion installations, will allow better monitoring of the environmental performance of economic sectors against their annual output, and will provide policymakers, participant companies and observers better tools to evaluate the claims made by companies about the pressures they face under the system. Furthermore this information is required to implement our recommendations to prevent offset arbitrage, and to clarify the appropriate scale of a set-aside to correct for the effects of oversupplied industrial installations on Phase 3 budget baseline.
As a final note, we observe that the current presentation of the CITL is very piecemeal and makes it difficult to determine the aggregate performance of the system, or particular sectors and countries within it. We therefore recommend that the Commission develop a user-friendly and queryable data viewer, similar to the data tools that Sandbag has developed in their absence, and lastly to allow site visitors to download the latest CITL database as CSV files.