1.4 billion ETS credits could go

The European Commission is attempting to rescue the EU emissions trading scheme (ETS) by proposing to lower the emissions cap by the equivalent of 1.4 billion allowances

With the economic downturn resulting in participants’ emissions being well below the imposed cap during the second phase of the ETS, an excess of allowances has seen carbon prices fall to record lows in 2012 forcing the commission to take action.

It has now formally proposed postponing the auction of 900 million allowances during the next phase of the scheme, which runs between 2013 and 2020, and outlined six other potential actions it could take to ensure participants continue to cut emissions.

The proposals include tightening the overall 2020 emissions reduction target from 21% to 30% – the equivalent of cutting 1.4 billion allowances from the scheme, or permanently retiring a portion of phase 3 allowances.

Another proposal is to limit the extent to which participants can use international offsets to meet emissions reductions. This move has been welcomed by climate change campaigning group Sandbag which has calculated that during 2011 13% of emissions covered by the ETS were offset, further contributing to the surplus of allowances.

Connie Hedegaard, the European commissioner for climate action, said: “Because of the oversupply in the market, the ETS is not driving energy efficiency and green technologies strongly enough. This is why as a first immediate step we propose to delay the auctioning of 900 million allowances in the next three years. We must not flood a market that is already oversupplied.”

The commission is also proposing to expand the EU ETS to new sectors despite the controversy surrounding its expansion of the scheme to include emissions from aviation from 1 January 2013.

The potential change was outlined just days after the commission confirmed that it had suspended the inclusion of flights from outside the EU from the ETS, following movement in negotiations for an international mechanism to cut aviation emissions.

Hedegaard made it clear, however, that if the efforts of the International Civil Aviation Organisation did not progress by next autumn, the ETS would be extended to include international flights as planned.