By Anders Lorenzen

 The carbon price at the EU’s Emissions Trading Scheme (ETS) yesterday fell to an all time low at just €2.81, fuelling questions about the systems capability to reduce CO2 emissions. It has for a long period been lingering around €5-6 per tonne of emitted CO2 and it has been argued that for it to be effective, the system will need to be redesigned so the price will never sink below €30.

EU Climate Commissioner, Connie Hedegaard, said in a press statement:  

  “On a day where the carbon price at some point went below €3 it must be clear to all that when the Commission warned that the ETS price could drop dramatically it was not a false warning but a real possibility. This is not the time to put the Commission’s back-loading proposal on the backburner.’’

By ‘back-loading’ Hedegaard is talking about a proposal tabled by her department in November last year to postpone the auction of 900 million allowances from 2013-2015. By making less allowances available you would automatically raise the value of the remaining allowances.

Hedegaard defends the EU Emissions Trading Scheme (ETS) and says big economies like Australia, California, Korea and China have recently established, or are planning to establish similar systems, and continues:  

“In line with what Member States have asked the Commission to do, we have presented a proposal for back-loading (the short term response) and options for the more structural initiatives. Everyone knows that the political discussion over the structural options will take time. The recent events show that something has to be done urgently.’’

November’s proposal was rejected, but in the press statement she appealed to member states to support back-loading.

Of course back-loading will only be a temporary solution and in the long term the EU will be looking to reform the system. In a consultation period that will run until 28th February 2013, the following options will be considered:

1. Increasing the EU’s greenhouse gas emissions reduction target for 2020 from 20% to 30% below 1990 levels;
2. Retiring a certain number of phase three allowances permanently;
3. Revising the 1.74% annual reduction in the number of allowances to make it steeper;
4. Bringing more sectors into the EU ETS;
5. Limiting access to international credits;
6. Introducing discretionary price management mechanisms such as a price management reserve.

Out of those proposals we are familiar with, the ongoing debate on whether to raise the 2020 emissions reductions target for 2020 from 20% to 30%, the only country who seems to still be against this is Poland. By involving more sectors she could be talking about the controversial inclusion of the airline industry which has been met with fierce criticism from countries outside the EU who will be applicable for the tax when they fly in EU airspace, this has prompted Hedegaard to delay for a year, but has insisted it will go ahead.  

Subedited by Charlotte Paton