EU Emissions Trading Scheme

Fallout and climate policy

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It’s no exaggeration to say that the Fukushima nuclear reactor disaster in March has cast a shadow over plans for new nuclear power capacity globally, and it is too early to say whether this will fade with time. But it’s also having much wider indirect consequences which could yet cause a shift in Europe’s energy and climate policy and complicate global climate talks.

Many of the accident’s extreme circumstances were unique to Japan, so there may or may not be lessons to learn in other countries. But, rightly or wrongly, that message is rapidly becoming politically irrelevant amid the understandable trauma. (more…)

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Conflicting objectives

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Conventional wisdom among climate policymakers holds to the idea that greenhouse gas mitigation, energy efficiency, and renewable energy targets will combine to deliver the EU’s 20% emissions reduction goal for 2020 relative to 1990, with a higher 30% target still on the table.

But the reality is that there is a long-standing and unresolved tension at the heart of the EU’s 2008 20/20/20 energy and climate package. And the bloc’s roadmap for 2050 (ENDS Report, March 2011), aimed at cutting emissions by at least 80% relative to 1990, has brought matters to a head. It’s not just about whether to go for 30% or a near offer, but about how the three elements work together, or do not.

The European Commission is deeply concerned that a renewed drive for energy efficiency, together with a continuing surge in renewable energy investment across the EU, will undermine carbon price signals in phase III of the EU emissions trading scheme (ETS) from 2013. Already in Germany, the power sector is battling low profitability from its conventional power plants which must now power down inefficiently when renewable electricity is available. These utilities are struggling to find the cash to invest in the vast amount of new low-carbon plant needed to decarbonise its grid, not least in back-up and baseload plants. (more…)

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Talk is cheap – but so is energy efficiency

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The last time energy efficiency was a high profile issue was during the notorious oil shocks of the 1970s and the three-day week. But here we are again.

This time round, the ‘trinity’ of rising energy costs, supply concerns and climate change policies is providing a new imperative that will be harder to ignore or forget.

The new ENDS special report on energy efficiency shows how far a wide range of both large and medium sized companies have gone on their energy efficiency journey – and how they are reaping rewards in lower energy bills and greater competitiveness.

As the report explains, there is still a huge amount to be done. (more…)

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Good intentions, wrong kind of cuts

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The phrase ‘greenest government ever’ has become a mantra for the Coalition, not least for David Cameron and energy and climate secretary Chris Huhne. And we are assured that at the heart of the vision is Britain’s commitment to a low carbon future.

Emissions should be cut by at least 34% by 2020 relative to 1990. Low-carbon businesses and technologies should help drive the UK out of recession and towards green growth.

We will see whether these ambitions translate into reality or get lost in a fog of fiscal expediency when the government publishes its spending review in less than a week’s time. (more…)

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Trading away the future

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2010 has been a bad year for the climate.

Not just for climate treaty negotiations – few expect a deal in Cancún in Mexico this December after the failure in Copenhagen last December. But also for the carbon markets that ultimately depend on strong policies.

Huge interests are at stake. Pioneering investors feel let down and are warning they could go to the wall. The uncertainty could go on until Cancún, or even longer.

This is on top of uncertainty over the post-2012 status of the UN clean development mechanism. The CDM’s future is further clouded by European Union proposals to stop many types of UN offsets from entering the EU Emissions Trading Scheme after 2012.

Why should we worry? There are several reasons. (more…)

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Britain’s energy challenge

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Energy policy in the UK is at a crossroads, and the decisions made now will reverberate for decades. At least 43 gigawatts of new electrical generation capacity, equivalent to half of Britain’s current total, will be needed by 2020, as all but one of its nuclear plants are retired and coal-fired power stations closed to meet EU air pollution standards.

A staggering £200bn of investment will be needed not only to maintain energy security against price spikes as North Sea resources dwindle and energy imports grow, but also to deliver the largest single contribution to a low-carbon economy. (more…)

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Climate talks – mending the ‘broken record’

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The latest inter-sessional climate talks at Bonn revealed just how much the future of global climate and energy action still hangs by a thread – and a badly frayed one at that.

Until now, the international offset market has limped along despite the looming threat of a gap between the first Kyoto Protocol commitment period, which ends in 2012, and the beginning of a new global agreement. There had been signs of a recovery in momentum at the June talks in Bonn (ENDS Report July 2010), with progress on rationalising negotiating texts. (more…)

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Climate talks: the road to Cancun just got rockier

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The chances of even an outline global climate deal at Cancun in December 2010 look slim after America’s Democrats failed to garner the 60 votes needed for a cap and trade bill in the dying days of July. Short of a miracle, President Obama will in effect go naked into that conference chamber.

The passage of the House of Representatives bill in 2009 was a high watermark (ENDS Report, May 2009). Since then, the US Senate, which must also get a version through before a unified bill can pass into law, has struggled against strong fossil fuel interests (ENDS Report, June 2010). (more…)

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Osborne’s carbon tax identity crisis

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During the count-down to George Osborne’s emergency budget of June 22 (ENDS Report, June 2010) a real sense of expectation grew that the chancellor would announce concrete new policies on energy and climate change. In the event, nothing of the sort happened.

Yes there were fleeting references to new policies. But in each case there was no advance on details already set out in the coalition’s sketchy programme for government (ENDS Report May, 2010). The further delays are doing little for investor confidence.

Especially frustrating is the lack of progress on the most radical policy – replacement of the electricity component of the Climate Change Levy (CCL) by a “top-up” carbon tax on power generators.

The tax would kick in whenever emission allowances in the EU Emissions Trading Scheme drop below an as yet unspecified threshold. This would effectively set a carbon floor price, providing a more consistent signal in favour of low carbon investment.

The plan remains on the table, but now looks set to be seriously delayed. (more…)

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Plugging the carbon leak

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Ever since the European Union introduced the world’s first mandatory greenhouse gas cap-and-trade scheme in 2005 it has faced complaints that by setting a price on carbon it would drive heavy industries away.

The financial crisis and recession, plus the failure of the Copenhagen climate summit to agree a post-2012 global climate policy framework have pushed this issue of ‘carbon leakage’ way up the political agenda.

I explore the rights and wrongs of the whole issue at length in a new feature article, which will appear in the June edition of the ENDS Report.

The critical context is the decision facing Europe of whether it should increase its 2020 climate targets from a 20% reduction relative to 1990 to 30%. And the burning question is whether raising the target would add to carbon leakage. (more…)

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The ENDS Carbon & Energy Efficiency blog provides news and comment for carbon and energy management professionals in business and the public sector, covering the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme and other carbon and energy management and regulation issues. The blog is part of the ENDS Report Carbon & Energy Efficiency channel.

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