A joint statement to support bringing forward legislative proposals to deliver reform of the EU Emissions Trading System (EU ETS) by the end of the year

Today, Energy and Environment Ministers from 12 EU Member States issued a joint statement calling for MEPs to support the so called ‘backloading’ proposals due to be voted on in Strasbourg on 3rd July, and for the European Commission to bring forward legislative proposals to deliver structural reform of the EU Emissions Trading System (EU ETS) by the end of the year. The call has been echoed today by separate statements and press releases from businesses and industry groups across the EU.

The Ministers’ joint statement, first published on 7 May, has seen support for both backloading and structural reform grow to cover include 12 member states with Italy, Slovakia and Estonia adding their support, as well as widespread support from individual businesses and industry associations across the EU Europe. Support for the twin ETS reform now includes all four of the EU’s largest member states – UK, France, Germany and Italy.

The joint statement was an initiative of Rt Hon Edward Davey MP, UK Energy and Climate Change Secretary.

Commenting on the joint statement, and ahead of the European Parliament’s plenary vote on ETS backloading on 3rd July, Secretary of State Edward Davey said:

“We are determined to ensure the Emissions Trading System remains Europe’s primary tool for delivering cost-effective emissions reductions and stimulating the massive low carbon investments we need.

“A twin track approach to ETS reform is critical. Backloading is an important short-term measure to help stabilise the system and to buy time for legislation, which should come out by the end of the year, to deliver structural reform to the ETS.

“We have seen all sorts of unsubstantiated claims about the potential costs of backloading. The reality is that the ETS is the most cost effective tool we have.

“Without the ETS, Europe will likely revert to a disjointed and fragmented array of national measures which will be far more expensive for industry and consumers alike.”

Joint Statement on the EU Emissions Trading System

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Notes for editors

Background

  • There is a huge accumulation of surplus allowances in the EU ETS at present – the Commission estimates this surplus to be nearly 2 billion allowances. This has been caused in by a combination of a fall in demand for allowances due to the economic slowdown, weak rules in the earlier Phases of the ETS and a flood of international credits into the system at the start of Phase III (2013-20).
  • This has resulted in a significant fall in the carbon price over the last 12 months to around €5 a tonne when it was originally envisaged to be between €20 and €30 a tonne. And further introductions of carbon credits under Phase III of the EU ETS from 2013-20 will see the price plummet further.
  • As a result, the ETS is in danger of failing to stimulate the large scale investments in low carbon technologies for which it was in part originally envisaged, and some have called into question the viability of the ETS the EU’s most cost-effective and technology neutral instrument for driving down carbon emissions.
  • In order to deal with these problems, in July 2012, the European Commission published a legislative proposal - the ‘backloading proposal’ - which would empower the Commission to delay the auctioning of 900m Phase III allowances until the end of the period. This would help to prevent the carbon price from falling further, buying time for more substantive structural reform. These proposals were followed up in November 2012 when the Commission published options for structural reform of the EU ETS in its Carbon Market Report.
  • However, on 16th April, the European Parliament voted to reject a proposed negotiating position with the national governments in the Council on backloading and to send the dossier back to the European Parliament’s Environment (ENVI) Committee for further consideration. Directly following the vote, the EU ETS carbon price fell to a record low of €2.63 and currently fluctuates at around €4 per tonne.
  • The European Parliament’s ENVI Committee held a second vote on the proposals on 19 June. They voted in favour of the proposals with some amendments. The Plenary on 3 July will determine the European Parliament’s position on backloading.
  • There has been substantial speculation in the national, European and international media over the future viability of the EU ETS as a driver of low carbon investments, as a centre piece of EU environmental policy and for the future of carbon markets as a whole.
  • Without the EU ETS, there could be strong calls for alternative, costly and regulation-centric approaches to meeting EU and national climate goals. And at a time when many other parts of the world have or are developing their own carbon markets, potentially with a view to linking in with the EU’s ETS in the future, the uncertainty over the EU ETS does not bode well.

The Statement

  • Purpose: This statement was first published after the backloading vote in the European Parliament’s Plenary on 16 April, and included signatures from nine EU Environment Ministers including the three biggest Member States – UK, France and Germany. This revised version includes three new signatures from the Environment Ministers of Italy, Estonia, and Slovakia, demonstrating the support of Member States in the run-up to the Plenary on 3 July. The statement does several things:
  • Addresses speculation over the future of the EU ETS by strongly reaffirming commitment in the centrality of the ETS to the EU’s energy and climate change policies;
    • Sets out clear direction and sets deadlines over next steps on EU ETS reform: (i) calls for national governments in the Council and MEPs in the Parliament to come to a resolution to the backloading proposal by July this year at the latest, and (ii) in parallel, for the Commission to produce a legislative proposal to deliver proper structural reform to the EU ETS by the end of this year at the very latest;
    • Addresses some of the key arguments and myths over the potential costs and risks of the backloading proposal that were communicated to MEPs in the run up to the European Parliament’s vote in April.
  • Timing: The statement is being re-published before MEPs vote on backloading proposals in the European Parliament Plenary on 3 July. It is designed to re-affirm support for the proposals and to provide an early signal to the Commission of support for bringing forward legislative proposals on structural reform of the EU ETS by the end of the year at the latest.
  • Business Support: In parallel to the statement, businesses and industry associations from across the EU are issuing their own statements and press releases in support of this two track approach.
  • Next Steps: We look to the European Parliament to vote in favour of backloading proposals on 3 July and for the Commission to bring forward legislative proposals for structural reform of the EU ETS by the end of this year.

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