EU ETS emissions fell 4.5% in 2014. Is the EU’s flagship policy (ETS) on the verge of capsizing?

EU ETS emissions fell 4.5% in 2014. Is the EU’s flagship policy (ETS) on the verge of capsizing?

Information has just been issued from the European Commission, suggesting that emissions fell by 4.5% in 2014, compared to a year earlier. These figures significantly reveal that European industry deploys extensive innovations which helps them to cut greenhouse gas output.The data covers the emissions for 2014, from more than 12,000 installations.

FIGURES - The highlights

  • Emissions from the power and heat installations – the biggest emitting sector under the EU ETS - dropped by 6.8%, but not only due to a mild Europe-wide winter which would have cut demand for heat and electricity.
  • Emissions from the oil and gas sector showed a 3.7% decrease, whilst the pulp and paper sector also fell by 4.6%.
  • CO2 output increased by 1.1% in the metals industry, and in the cement, lime, glass, and ceramics industries by 3%, due to higher production.
  • The countries showing the largest cuts in percentage terms were: Slovenia (-17%), Denmark (-14.4%), France (-12.4%), and Britain (-11.4%).
  • Central European countries performed well, too, with Lithuania leading the way with (-6.8%), closely followed by Latvia (-6.6%) and Estonia (-6.1%). Slovakia (-3.8%), Croatia (-3.7%), and Poland (-2.4%), also performed creditably.
  • Nine of the 31 countries in the survey increased their emissions, with the Netherlands (+3.0%), and Spain (+2.0%).

The EU’s backloading measure, cut auction volumes by 400 million units last year, and led to a net shortage of around 200 million tonnes. However, the allowances surplus was still growing, due to the falling emissions figures, and this mixed picture led the EU’s Climate Commissioner, Miguel Arias Canete, to declare on Twitter: “We need a quick and robust MSR deal!” He is wrong to think that way, because the figures show that low prices of EUAs help to develop the EU’s industry, and no MSR is needed to achieve the EU’s CO2 decrease goals. We, at CEEP, can only hope that ENVI will change their position.

The key factor he should be considering is that the EU ETS emissions figures dropped further than the annual decrease of the market’s overall cap, which reduces annually by 1.74% below 2012 levels between 2013 and 2020. The cap is determined by Europe’s target for emissions reduction, and it is estimated that without MSR, it will reduce emissions close to 22%, when compared to 2005, by 2020. The prospect of a global environmental deal at this year’s Paris Summit in December, will surely increase the prospect of further cuts in emissions, but we should compare the situation to the rest of the world, which is not too eager to accept the EU concept of ETS, whilst the bigger global economies emit more than twice per capita than in the EU. These economies emit round 17 tonnes per capita, compared to the EU’s 7 tonnes. Their economies increase more rapidly than in the EU, and this speaks for itself.

The prospect of decreasing CO2 may well lead to an expected fall in the carbon price, which will push development of the EU’s economies. If the EU decides to artificially raise the carbon price, then that would result in, not only pushing up the operating costs of manufacturing industries that emit CO2 directly, but also producing major carbon leakage and competitiveness issues for them. The volatile carbon price, and lack of a price floor, combined with uncertainty linked to the long-term perspective (post-2020), has largely undermined the EU ETS’s potential to encourage major investments in the decarbonisation process, and this is yet another failure associated with the much-maligned system.

EU interventions also tend to make climate policy less predictable, and they create vulnerability in energy-intensive industries and in the EUA market. If the ETS remains, then it must be on the basis of a proper benchmarking, cost-effective and market-based instrument, and with its nature unaltered: this is how it was initially foreseen.

Peter Whiley, Specialist, Grupa LOTOS