Emission Trading Scheme has lost its power due to recession and the ongoing support for renewables

EU 'should be stricter' on carbon but renewables 'not the way'

The European Emission Trading Scheme (ETS) is too weak and doesn’t prevent further spread of coal-fired plants, a UK think-tank has said today.

The authors of the report released by the Policy Exchange, entitled ‘If the Cap Fits’, encourage the European Union to set a more ambitious goal when it comes to tackling greenhouse gas emissions and rethink the ETS, otherwise it might fall apart.

The ETS, which requires energy and heavy industry to buy permits to cover their pollution, is losing its power, as the carbon prices fell during the recession as low as €3 per tonne of CO2 emission pollution, the report claimed. The cheap permits lead to 'offsetting' greenhouse gases in projects outside the EU which has "dubious" environmental benefits.

The extensive support of renewable resources also leads to further decrease of the carbon-permit value, as it diminishes the need to cut emissions elsewhere to comply with the overall targets.

“The 2020 Renewable Energy Target has cost far more than cutting emissions through the ETS, unnecessarily raising consumer bills. With prices in the ETS as low as €3 to cut a tonne of CO2, renewable energy targets are forcing UK bill-payers to pay 30 times as much (€90 a tonne),” the report said. As a result, while consumers are paying more for the expensive renewable energy, companies could build coal-fired power stations without concerns their pollution would cost too much.

The think-tank believes the EU should extend the ETS cap for the energy sector and heavy industry out to 2035, while at the same time tightening up the current carbon-emission reduction target from 40 per cent in 2030 to 55 per cent five years later. The think-tank believes the currently outlined regulations would only achieve a 70 per cent emissions cut by the middle of the century, staying far behind the 80-95 per cent target of the 2050 Roadmap.

Instead of investing in renewables, the EU should focus on cheaper alternatives, such as enhancing energy efficiency and switching from coal to gas power.

To give industry clearer signals, the EU should outline the emission policy further into the future. So far, the ETS scheme has only been given a maximum of 11 years' certainty. As building energy infrastructure requires large investments and often relies on governmental subsidies, a 20-year plan would be a much more suitable option, the Policy Exchange’s report said.

The Policy Exchange has stepped forward as the EU is currently discussing the future approach to tackling the climate change. "The EU has to decide if it is serious about tackling climate change. That means setting an ambitious target which will deliver a clearer carbon price and then allowing low-carbon technologies to compete - not picking favourites. The ETS should be the backbone of such a system," said report author Simon Moore.

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