1 February 2012A European Commission working paper on emission targets is urging the adoption of more ambitious climate goals and a reduction in the supply of Emissions Trading System (ETS) allowances. The Commission paper, a cost-benefit analysis of the EU’s target to reduce greenhouse gas emissions to 20% below 1990 levels by 2020, suggests that the fall in ETS emissions has paradoxically increased the risk of Europe becoming locked into high-carbon investments.
The rate of emissions reductions has been faster than expected due in part to high energy prices and the economic crisis. This has in effect limited the potential of the 20% target to drive innovation, by reducing the need for new technologies such as carbon capture and storage (CCS). This has led to concern over a lack of investment in low-carbon infrastructure, which will make it more difficult to meet longer-term targets.
The Commission argues that moving to a 30% target through reducing the number of allowances auctioned in the ETS could result overall in higher auctioning revenues to governments, with carbon prices increasing more than the reduction in the amount of auctioned allowances.
Carbon prices slumped to a four-year low last year, and are trading around €8 per tonne of carbon dioxide, down from highs of €30 in 2008.
Abstract from Environmental Finance. To read the full story click here.