Netherlands Eyes Firmer Carbon Market in Call Welcomed by Canete

  • Dutch presidency of EU seeks flexibility to tighten market
  • EU emissions program too weak, Dutch environment minister says

The Dutch presidency of the European Union is seeking political support from member states to enshrine in a carbon market reform a flexibility provision that would enable strengthening the world’s biggest cap-and-trade program.

The plan would pave the way for tightening emission-permit supply and would enable a faster shift to clean technologies, according to Dutch Environment Minister Sharon Dijksma. Prices in the EU Emissions Trading System, where 2013-2020 pollution caps on companies were set before the global financial crisis, fell almost 80 percent in the past eight years as industrial output shrank, aggravating a glut of allowances.

“You cant predict everything in advance, therefore flexibility within the system is necessary,” Dijksma said in an interview in Luxembourg on the margins of a quarterly meeting of EU environment ministers that she chaired. “The ETS needs flexibility to take permits out of the market. That has to be done first because without the flexibility you have the problem that the price will in the end be too low.”

The presidency’s plan would complement the Market Stability Reserve, an already approved mechanism that will automatically control the supply of permits to pollute starting in 2019. EU Climate and Energy Commissioner Miguel Arias Canete welcomed it, saying on Monday that in a debate about the post-2020 reform of the ETS policy makers should “continue to think in the context of volume regulation” rather than focus on direct price regulation or change of headline climate targets.

Climate Change

The 28-nation EU wants to lead the global fight against climate change. Its leaders agreed in 2014 to deepen the bloc’s emission-reduction target to at least 40 percent by 2030 compared with 1990 levels from 20 percent in 2020. This is still not enough to keep Europe in line with the goal of a global climate deal reached last year in Paris, where almost 200 nations agreed to work toward capping global temperature increases since pre-industrial times to 2 degrees Celsius (3.6 degrees Fahrenheit), Dijksma said.

EU allowances for delivery in December rose as much as 4.9 percent to 5.95 euros a metric ton on the ICE Futures Europe exchange in London. The benchmark price, which recovered from a record low of 2.46 euros in April 2013, is still too low to stimulate investment in low-carbon technologies, according to Dijksma.

The 11-year-old cap-and-trade program, Europe’s flagship climate policy tool, imposes pollution limits on more than 11,000 facilities owned by utilities and manufacturers. Under the proposed reform of the market, the emission caps will be reduced annually by 2.2 percent starting in 2021, compared with 1.74 percent in the current trading period through 2020. The presidency’s flexibility plan would enable tighter supply without changing the so-called linear reduction factor.

To enter into force, the draft law needs weighted-majority support from national governments, majority backing from the European Parliament and endorsement from the European Commission. Some flexibility options to further reduce the glut in the carbon market include withdrawing permits that were issued to coal-based power plants that close down or limiting the share of allowances to be given for free to some companies, according to Dijksma.

“There’s all kinds of possibilities,” the Dutch minister said. “After Paris there’s a momentum to strengthen the ETS. I see that there are a lot of member states in the EU agreeing on the necessity of a good system.”

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