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The EU ETS will not be the driver of decarbonisation of the EU economy until 2030

A new report analyses the reform proposals for the EU Emissions Trading System (EU ETS) which are under discussion in the trilogue negotiations between EU institutions, as well as other possible evolutions of the EU ETS in its Phase IV (2021-2030).

Paris, 2017, October 10 – The window of opportunity to reform the EU ETS is about to close, with the conclusion of trilogue negotiations between the EU Parliament, the Council and the Commission. I4CE-Institute for Climate Economics- and Enerdata, in collaboration with IFPen demonstrate in a new report that the EU ETS reform, given the EU Parliament and the EU Council proposals, will not be sufficient to make it a driver of decarbonisation in energy and industry sectors by 2030.

The report “EU ETS- Last call before the doors close on the negotiations for the EU ETS reform” provides an assessment of the EU Parliament and EU Council’s reform proposals, adopted in February 2017. The report looks into greenhouse gases (GHG) emissions reductions, the cost of necessary abatements, the functioning of the Market Stability Reserve (MSR) and the framework of free allocation to industries. Furthermore, the report analyses the impacts of an exit of the UK from the EU ETS, as well as the possible introduction of a price corridor on the EU ETS.

The report demonstrates that:

  1. EU Parliament and EU Council’s reform proposals to strengthen the EU ETS fail to make it a driver of decarbonisation in energy and industry sectors over its Phase IV (2021-2030).
  2. The EU ETS requires a drastic decrease of GHG emissions in the long term.
  3. A possible exit of the UK from the EU ETS adds to the uncertainty of the current revision of the EU ETS directive. In that case, careful attention should be paid to the adaptation of the emissions cap and the MSR parameters.
  4. The framework for free allocation to prevent carbon leakage1 risks in industrial sectors is a focal point in the negotiations on the EU ETS reform.
  5. The EU ETS needs to be assessed along with other climate and energy policies.

Enerdata modelled different scenarios for the design of the EU ETS, with a long-term perspective until 2040, using their global energy system simulation model (POLES). Cyril CASSISSA, project manager at Enerdata points out that “the interaction between the different EU objectives (the reduction of GHG emissions, the deployment of renewable energy sources and energy efficiency measures) has a significant impact on the functioning of the EU ETS. Taking into account the objectives for renewable energy sources and energy efficiency shows that the EU ETS will not be effective over its Phase IV”.

1 Risk of a transfer of industrial production to a country with laxer climate policies

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