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EC Review of EUETS System
Climate Change Capital calls on Commission to deliver a robust Phase 2 and post-2012 visibility for investors
(London, 13 November 2006) UK investment banking group, Climate Change Capital (CCC), which is dedicated to investment in clean energy and a low carbon economy, comments on the European Commission's announcement setting out the process that will lead to revision of the Directive governing the EU Emissions Trading Scheme (EU ETS). The process, which is likely to last until mid next year when amendments will be negotiated between the Commission, the Member States and the European Parliament, will also set out the key issues to be considered during the stakeholder consultation process.
The Review covers the post-2012 period only, i.e. Phase 3 and beyond, focusing on the principles for allocation, cap setting. It does not determine the level of emissions reductions expected. Experience to date suggests that much greater harmonisation and centralisation is required under the scheme in order to reduce competitive distortions within the EU. Greater post-2012 clarity will increase the range of abatement options to entities regulated under the scheme.
The Review will also cover provisions for linking the EU ETS with the Kyoto Protocol's project mechanisms, the Clean Development Mechanism (CDM) and Joint Implementation (JI). These mechanisms provide low-cost reductions for the trading sector and facilitate clean investment in developing countries and economies in transition.
The European Commission is currently evaluating proposed National Allocation Plans for Phase 2 of the EU ETS (2008-2012). Following over allocation in Phase 1, the Commission needs to make significant reductions in Phase 2 in line with the EU's Kyoto targets in order to prove to investors that the EU is serious now and in the longer term. The ETS Review will be judged in this context.
The Commission is also preparing its Strategic Energy Policy for the next decade, following publication of its Green Paper on Energy in March 2006 which will influence the future role of the carbon market. The Commission will be publishing an assessment of options of the post-2012 international climate regime alongside its Strategic Energy Policy and this will provide a clearer indication of the EU's future policy commitment.
The combination of the Phase 2 decisions, ETS review, EU energy review and post-2012 options will determine the EU's approach to climate change for the next decade. If Phase 2 is not convincing, the Review, however ambitious, will not be taken seriously.
This week, the environment commissioner Dimas will be in Nairobi at the UN climate negotiations presenting the EU's progress on emissions trading.
Kate Hampton, Policy Advisor at Climate Change Capital, said: "Through concurrent reviews of climate and energy policy, the EU is about to set the boundary conditions for investment between now and 2020. A robust Phase 2 decision combined with a Review aimed at strengthening the post-2012 carbon signal will align public and private interests, delivering substantial capital within the EU and globally through the Kyoto market. Leadership on emissions trading provides the EU with a first mover advantage in the now inevitable move towards a low-carbon economy."
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Enquiries:
Climate Change Capital
Kate Hampton +44 (0)7748 967 323 khampton@c-c-capital.com
Communications Team +44 (0)20 7939 5319 media@c-c-capital.com
Notes to Editors:
How carbon trading reduces emissions
The Kyoto Protocol, set up to combat global climate change by reducing greenhouse gas emissions, includes the Clean Development Mechanism (CDM.) This mechanism enables companies or groups in industrial nations, such as Britain, to identify a source of greenhouse gas (GHG) emissions in a developing country, such as China, and to finance a project to reduce those emissions.
Each industrial nation who ratified the Kyoto Protocol agreed to an annual quota of tons of carbon dioxide equivalent emissions that they would emit. The CDM allows these nations to meet their emission targets by accessing cost-effective opportunities to reduce emissions or remove carbon from the atmosphere in other countries. The certified emission reductions (CERs) created under the CDM can be used to offset the emissions of these nations or they can be sold.
The global, policy driven market for Carbon Assets was created to give an incentive to countries to reduce GHG emissions, create demand for Carbon Assets and encourage the financing of GHG emissions reduction projects. This market is referred to as the "carbon market".
Critics say that the system may encourage some businesses to attempt to buy their way out of trouble but as James Cameron, the vice-chairman of Climate Change Capital says: "It doesn't matter where in the world a ton of pollutant is taken out of the atmosphere, whether it be Beijing or Burton-on-Trent. A ton of carbon is still a ton of carbon and it matters to us all."
