ETS Set-Aside Not Enough

The EU must set a reserve price for carbon auctions and start debating targets for 2030 if it wants to restore faith in its emissions trading scheme (ETS), says research group Climate Strategies. Setting aside allowances alone would not be enough.

The warning comes in a report on strengthening the ETS, due to be released on Monday evening. Setting aside 1.4 billion allowances – the amount recommended by the European Parliament's environment committee – could be done rapidly but would not provide the long-term certainty investors need, says the report.

Prices under this scenario could still range from below €10 per tonne to €40/t, the report suggests. It recommends that a set-aside is accompanied by the introduction of a gradually rising reserve price for ETS auctions. This should be done before more member states introduce their own measures, which would fragment the market.

Pointers are also needed on the ETS's longer term target, it says, but this discussion should not be rushed because the outcome must reflect international discussions over the next three years. One of the weaknesses of the EU's existing policy is that it was designed around a possible 30% target, it continues.

A senior adviser to the European Commission recommended introducing an EU-wide floor price earlier this month. Any measure along these lines could take different forms. The UK is planning to introduce its own floor price in 2013.