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Vote: Timing of auctions of greenhouse gas allowances (Reform of the ETS, backloading), July 2013.
In order to combat climate change the European Union needs to reduce greenhouse gas emissions.
The EU Emissions Trading System (ETS) was established in 2005 as the world’s largest carbon market. It is a tool for reducing industrial carbon emissions in a cost-effective way. There is an overall limit (cap) on the level of emissions over a certain time. Companies buy credits auctioned by EU Member States. One credit corresponds to one tonne of CO2 emissions.
If a company invests in a low-carbon technology it can sell unused allowances in the marketplace. This means that the companies which invest to limit emissions are rewarded, and companies which don’t have to pay extra. However, the carbon price must be high enough, otherwise investment in green technology is unattractive.
The economic crisis has led to a surplus of allocations, driving down the price of carbon. In order to address the current imbalances in the ETS, the European Commission proposed postponing ("backloading") the auctioning of some allowances, to increase the price of carbon and create renewed incentives for investing in clean technology.
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This proposal restores the carbon market to its pre-crisis equilibrium. Failure to do so would lead to more pollution and less innovation. The EU has been a global leader in the fight against climate change. This proposal sets an example for the rest of the world to follow. Forcing companies to invest in green technology will make the EU a global leader in this field, which is good for jobs and growth. |
The EU decided to let markets set the price for carbon. It should stick to that approach, or companies will lose faith in the system. Increasing the costs of production during an economic crisis is self-defeating. Companies will have to shut down and jobs will be lost. The EU is increasingly isolated when it comes to tackling CO2 emissions. It should wait for countries such as the US, China and India to act before taking any new steps itself. |
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