Corporate Leaders Group on climate change calls for tighter emissions cap and shorter review periods in wake of Paris Agreement
"A recent study of 10 years of the European Emissions Trading System has shown it can and does work to help businesses become more efficient and more competitive," said Jill Duggan, senior associate at the Cambridge Institute for Sustainability Leadership and one of the key officials who worked on the design of the ETS at its original inception. "It's not perfect, but now is the time to strengthen the system and make it truly world-leading, not weaken it with exceptions and low expectations."
Specifically, the Corporate Leaders Group is calling for a new approach to awarding free allowances to sectors that are at risk of competition from regions that do not have a carbon pricing regime. It argues that these so-called "allocations for carbon leakage" should be based on "real world circumstances" and reflect the fact these circumstances will change over the next 15 years. "More countries and regions have taken on a carbon price in the last few years, and after the Paris Agreement it is likely more will follow," the group states. "Allocations for carbon leakage sectors should take into account increasing carbon policies faced by major competitors internationally."
For example, China is poised to introduce a national carbon market from 2017 and the Corporate Leaders Group members want Brussels to reserve the right to assess how it is working and curb free allowances to certain industries if it becomes clear they are no longer at a competitive disadvantage as a result of the ETS.
Moreover, the group argues this closer analysis of which sectors should enjoy free allowances should be accompanied by a shorter ETS phase of just five years, which would bring the market into line with the Paris Agreement's commitment to five year reviews of emissions policies, making it easier for policymakers to correct any continuing oversupply of allowances in the market.
The group argues a shorter phase would see the EU learn from past mistakes. "Experience in Europe has indicated that external factors and unexpected consequences can impact a system negatively, requiring corrections to be introduced if a policy is not planned with sufficient flexibility up front," the report explains. "In the EU ETS for example, backloading and the introduction of the Market Stability Reserve were unplanned interventions to correct oversupply in a market that was set for an eight year Phase. Phase IV of the ETS is scheduled to be 10 years long. Such a long period is likely to require mid phase corrections and adjustments... In light of both the Paris Agreement and experience of the EU ETS, a five year phase would provide a planned opportunity to ensure that the policy continues to deliver on its objective and to revise targets and rules as necessary."
Finally, the report calls for an improved registry of all allowances to help tackle fraud, and a commitment to ensure all allowances auctioned or awarded during Phase IV are from the Phase IV cap - a move designed to stop the current oversupply of allowances undermining the caps imposed post-2020.
The Corporate Leaders Group proposals are likely to face fierce resistance from those rival business groups keen to see the ETS' post-2020 caps watered down and the oversupply of allowances continue in a bid to hold down energy prices. But as European policymakers consider how best to ensure the ETS continues to deliver emissions reductions over the next decade, the Corporate Leaders Group has offered a timely reminder that in the wake of the Paris Agreement there are plenty of Blue Chip firms that want Brussels to be more, not less, ambitious.
This article is part of BusinessGreen's Road to Paris hub, hosted in association with PwC.
