Thursday 30th of June 2016 09:29 PM
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Energy

Almost all of member academies are working on the topic of energy which remains of utmost importance, especially in view of the proposed EU-climate targets put forward by the European Commission in January 2014 to reduce EU domestic greenhouse gas emissions by 40%, below the 1990 level, and to increase the share of renewable energy to at least 27% of the EU's energy consumption by 2030. At the same time a well-designed European market for energy is also crucial for guaranteeing safe, sustainable and affordable energy for Europe’s consumers and industries.

 

Until June 2015, Euro-CASE Energy Platform was co-chaired by Ottmar Edenhofer, acatech, Germany, Bernard Tardieu, NATF, France and Bo Normark, IVA, Sweden.

The Platform produced a major Position Paper related to the European Emissions Trading System (EU ETS), presented to the European Commission at the end of 2014.

 

The central pillar of European climate policy, the EU ETS, is currently questioned in its ability to deliver its objectives as the allowance price is persistently low at around 5€ / tCO2.. This low price may affect the long-term cost-effectiveness of the instrument by reducing the incentive for investment and deployment of low carbon technologies. Consequently, no significant increase in the EU ETS allowance price is expected before 2020, and probably not beyond, without reform. While the reasons for the price decline are controversial, empirical analysis shows that only a small proportion of price fluctuations can be explained by factors such as the economic crisis, renewable deployment or international offsets. Therefore, it is likely that political factors and regulatory uncertainty have played a key role in the price decline. As a consequence, any reform of the EU ETS has to deliver a mechanism that reduces such uncertainty and stabilizes expectations of market participants. The Market Stability Reserve as proposed by the EU Commission is unlikely to address the problem of the low price, and the uncertainty of future price development remains substantial. The ability of the Market Stability Reserve to deliver long-term cost-effectiveness is thus questionable.

 

The key element of the alternative reform proposal by Euro-CASE is to set a price collar in the EU ETS with lower and upper boundaries. This is likely to reinforce the long-term credibility and reliability of the price signal. In addition, a price for the GHG emissions not covered by the EU ETS has to be set. If additional market failures prevent the market from functioning efficiently, specific policy instruments related to innovation and technology diffusion should be implemented in addition to carbon pricing. Carbon leakage could be addressed through tailor-made trade policies. In parallel, increasing the coalition of countries included in the carbon pricing should remain a priority. This reform package would bring the EU ETS back to life. At the same time, it would avoid a relapse into national climate and energy policies across Europe, which could result in much higher costs and inefficiencies.

 Download the Euro-CASE Policy Position Paper 'Reform Options for the European Emissions Trading System (EU ETS)'



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 For 2016-2018 the Energy Platform will be split into two working groups: one related to “Technologies”, under the co-chairmanship of Bo Normark and Bernard Tardieu, and the other, oriented toward “Climate”, led by Ottmar Edenhofer. They will meet early in 2016.