Fortum believes that the EU Emissions Trading Scheme (EU ETS) is and should continue to be the cornerstone of the European Union's climate policy driving low-carbon energy production, investments and energy savings.
Technically as a mechanism ETS has been working as intended, delivering
the emission reductions (environmental goal) in a cost-effective manner
(economic goal). However, the allowance prices have been lower than
expected due to the economic downturn and consequent lower emissions
levels, as well as overlapping policy targets and measures, which has
suppressed the steering effect of the EU ETS. In order to strengthen the
EU ETS, the cap of the system should be aligned with the long-term
targets. As soon as possible, the EU should set an ambitious and
consistent intermediate target for 2030 to reach the ultimate goal of a
low-carbon economy in 2050.
In the ETS, the price of allowance is
being set by demand/supply, and the installations have been in
compliance with the legislation and rules on the permitting and
surrendering of allowances, etc. The registry system is also working
Emission cap to be aligned with long-term targets
long-term predictability and stability of emissions trading is
currently of key concern and should be enhanced. In order to strengthen
the ETS, the cap of the system should be aligned with the long-term
targets of the EU’s low-carbon Roadmap 2050 initiative. As soon as
possible, the EU should set an ambitious and consistent intermediate
target to reach the ultimate goal of a low-carbon economy in 2050. More
stringent emissions reduction targets would be required to stimulate the
allowance price and the drive for low-carbon investments.
Fragmented policies undermining price signals
allowance price per se is not a problem, nor is it a result of a flaw
in the scheme’s design or functioning. In Fortum's view, ex-post
adjustments to the scheme due to the economic downturn and resulting
short-term depreciation of the carbon price should not be made. In the
future, however, some kind of a pre-designed mechanism adjusting the ETS
automatically in cases of significant deviations in economic
development - up and down-turns - should be considered.
policies clearly undermine the ETS price signals. When the CO2
reduction resulting from other policy measures, e.g. subsidies for
renewable energy production, the proposed Energy Efficiency Directive,
can be calculated and proved, a corresponding set-aside of allowances
from ETS would be justified.
Fortum would prefer a permanent
set-aside. A temporary set-aside or a postponed allocation of allowances
increases the regulatory risk and most likely will not change the
market behaviour. In practice, a revision of the cap has the same effect
as a permanent set-aside.
Climate target solely to steer climate policy
target of CO2 emissions reduction alone – without any parallel targets
for renewable energy or energy efficiency – should be steering EU
climate policy. In our view, the existing parallel steering mechanisms
are undermining the effectiveness of each other, and the steering effect
of the ETS. Renewable energy should become competitive without
subsidies other than the CO2 price and separate renewable energy targets
post 2020. If other targets (e.g. renewable energy sources and
efficiency) were nevertheless considered necessary, measures should
focus on the aspects that the CO2 emissions reduction target is not
addressing sufficiently (e.g. rural development) as well as removing
possible obstacles limiting the use of renewable energy sources.
- The EU ETS as a mechanism has worked as intended, and it should continue to be the cornerstone of the EU climate policy.
unexpectedly low allowance price resulting from the economic downturn
and overlapping policy targets and measures has diminished the
incentives for low-carbon investments. An ambitious CO2 target for 2030
should be established as soon as possible to stimulate those incentives.
of allowances to eliminate the proven impacts of parallel and
overlapping policy measures (e.g. RES, energy efficiency) would be
- Set-aside should be permanent in order to decrease the regulatory risk.
setting the post-2020 policy framework, overlapping policy targets and
measures watering down the efficiency and affectivity of each other must
- In the future, an automatic and pre-designed mechanism
to adjust the EU ETS in cases of significant deviations in economic
development should be considered.
For additional information, please contact:
Esa Hyvärinen, Vice President, Public Affairs
Kari Kankaanpää, Sustainability Manager, Climate and Environmental Affairs