Today's vote in the Industry Committee of the European Parliament to reject the so called ‘backloading' of EU ETS Allowances is a welcome development to stop tinkering round the edges. We must face up to the real question ere.
To withhold the auctioning of hundreds of millions of carbon allowances to the end of this decade, in order to artificially increase the carbon price, will not ensure the success of the EU Emissions Trading System (ETS). In fact it would only highlight that the scheme is not working.
When I say the scheme is not working, I am not referring to the price of carbon, but that we now see the experiment to create a ‘one size fits all' EU wide scheme simply doesn't work for all sectors at the same time. What the energy sector needs to decarbonise and what industry need, are different. This central conflict is arguably the downfall of the EU ETS. As some sectors need high carbon price to incentive investment, while other sectors, operating in a global market, will only suffer if subjected to this high price.
In the current economic climate, industry needs polices that have a core aim of strengthening competiveness and help those companies invest in sustainability. Just adding costs to these sectors achieves only the opposite.
The EU ETS is a market-based instrument and therefore has to be subjected to market principles. For the sake of predictability and investment certainty, we must not intervene in this market. We should not forget that the scheme is currently achieving it stated aim, that of meeting a predetermined cap on emissions within the EU. Whether or not that results in a reduction in global emissions is another matter.
Although, we as industry, long ago stated that an ex-post system of allocation would work better for EU ETS, government at the time believe that the certainty of the cap was paramount to the success of the system. Let's not forget that one of the main drivers for a low carbon price is the economic recession. The last thing industry needs at this time is a high carbon price. Shouldn't the European Parliament be voting for a policy that increases economic output within Europe. Output that will increase the need for allowances, that will increase the price. Is that not the way round it should be?
In reality the debate needs to centre on whether one scheme for largely different sectors will ever work. A sector by sector approach might prove to be the answer to low carbon innovation from all sectors and ensure that Europe is seen as a place to invest for the future.