Carbon market at risk from binding energy efficiency targets
European Commission
Tuesday, 03 November 2009 11:31
The European Commission is currently mulling over a possible dilemma which is brewing, that binding energy efficiency targets could have a detrimental impact on the ETS (emission trading scheme), the EU’s budding carbon market. It is feared that by making a 20% increase in energy efficiency by 2020 a legally enforceable goal, this would drive down carbon prices, as there will ultimately be a lower demand for carbon credits.
The ETS, which is seen as a cornerstone of the EU’s efforts to combat climate change, relies on a strong carbon price for it to be really effective. However if energy efficiency is improved in the EU, then there will be a lower output of carbon emissions, which will mean a lower demand for carbon credits. This would consequently drive down their price, and potentially hamper the ETS system.
No doubt in part due to this, the Commission decided to delay the publication of its revised EU action plan on energy efficiency this week, with many speculating that the proposal contains plans to make energy efficiency goals binding. The revised plan is now expected at the beginning of next year. Indeed Jos Delbeke, a senior Commission official, explained the importance of protecting the carbon credit system, saying ‘We must keep cap and trade firmly on the rails’.
Concerns about this potential problem are growing from other quarters however, with Green MEP Claude Turmes voicing his fears that the ‘Commission may prevent the cheapest means to reduce greenhouse gas emissions from being used to keep a high price on the carbon market’.
In an article of 29 October Peter Koh, commentator at MLex "the argument from some quarters of the European Commission's environment directorate that binding energy-efficiency targets should not be adopted because they could contribute to a low CO2 price is muddled thinking", because "The emissions trading system is supposed to help the EU achieve reductions in as cost-effective a way as possible, and neither a high carbon price nor the emissions trading system is an end in itself."
According to Mr Koh, there is strong research evidence revealing indicating that "meeting the targets on energy efficiency and renewable energy penetration alone should ensure that the the EU's CO2 emissions fall by 20 percent with a carbon market price of just 4 euros." This evidence also suggests that "power companies could be net sellers of allowances on the emissions trading system if they meet the 20 percent renewable-energy target." In his article Mr Koh concludes arguing that "Commission environment officials frequently say they are not interested in price-setting and that it should be left to the market to decide the price of CO2 allowances on the ETS. If this is true, they should worry less about the market price of carbon and their pet projects and more about the end-goal of emission reductions."
The ETS, which is seen as a cornerstone of the EU’s efforts to combat climate change, relies on a strong carbon price for it to be really effective. However if energy efficiency is improved in the EU, then there will be a lower output of carbon emissions, which will mean a lower demand for carbon credits. This would consequently drive down their price, and potentially hamper the ETS system.
No doubt in part due to this, the Commission decided to delay the publication of its revised EU action plan on energy efficiency this week, with many speculating that the proposal contains plans to make energy efficiency goals binding. The revised plan is now expected at the beginning of next year. Indeed Jos Delbeke, a senior Commission official, explained the importance of protecting the carbon credit system, saying ‘We must keep cap and trade firmly on the rails’.
Concerns about this potential problem are growing from other quarters however, with Green MEP Claude Turmes voicing his fears that the ‘Commission may prevent the cheapest means to reduce greenhouse gas emissions from being used to keep a high price on the carbon market’.
In an article of 29 October Peter Koh, commentator at MLex "the argument from some quarters of the European Commission's environment directorate that binding energy-efficiency targets should not be adopted because they could contribute to a low CO2 price is muddled thinking", because "The emissions trading system is supposed to help the EU achieve reductions in as cost-effective a way as possible, and neither a high carbon price nor the emissions trading system is an end in itself."
According to Mr Koh, there is strong research evidence revealing indicating that "meeting the targets on energy efficiency and renewable energy penetration alone should ensure that the the EU's CO2 emissions fall by 20 percent with a carbon market price of just 4 euros." This evidence also suggests that "power companies could be net sellers of allowances on the emissions trading system if they meet the 20 percent renewable-energy target." In his article Mr Koh concludes arguing that "Commission environment officials frequently say they are not interested in price-setting and that it should be left to the market to decide the price of CO2 allowances on the ETS. If this is true, they should worry less about the market price of carbon and their pet projects and more about the end-goal of emission reductions."
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