Fortum's response to the EU Consultation on structural options to strengthen the EU Emissions Trading System

Fortum is strongly committed to climate change mitigation and supports cap & trade-based emissions trading as the main climate policy instrument in Europe. The European Emissions Trading System (EU ETS) should not be seen in isolation, but in a context of other climate and energy policy targets and measures set and implemented both on the EU and national levels. In that background, Fortum considers the following measures necessary to strengthen the incentives generated by the EU ETS:

  • Short-term (2013-2020): the back-loading of 900 million allowances should be implemented without delay and should be followed by a permanent set-aside of allowances.
  • Long-term (after 2020): Firstly, a clear decision on the post-2020 climate and energy policy target framework should be made as soon as possible and should put the EU ETS at the centre to steer the EU climate policy. Other targets that have overlapping effects on the EU ETS – targets like those on renewable energy sources, energy efficiency and taxation – must be supportive of the EU ETS, if needed at all. This applies to the targets themselves as well as to the measures by which they are implemented in order to avoid a situation in which they water down the incentives of each other. Secondly, CO2 reduction targets based on the EU Climate Roadmap should be set for 2030, 2040 and 2050. The cap of the ETS should be adjusted in accordance with these targets by increasing the linear emissions reduction factor latest from 2020 onwards. In addition, extension of the ETS to new sectors should be carefully analysed.

This kind of long-term policy framework would affect all sectors of society and would ensure the environmental goal of the system is reached in a cost efficient way. The ETS would continue as a genuine quantity-based market mechanism where the price of CO2 is set by the supply-demand balance.

Fortum highlights the need of the ETS to be able to adjust to economic cycles. Although the ETS should be a true market mechanism, provisions for extreme economic fluctuations may be needed as a safety valve in the ETS and to ensure the necessary investment incentives. An automatic and pre-designed mechanism to adjust the ETS in cases of significant deviations in economic development should be investigated. Fortum considers a supply-demand management reserve worthy of investigating for this purpose.

Read the full response below.