CLIMATE CHANGE/ETS : COUNTERACT LOW CO2 PRICE BY CUTTING FREE ALLOWANCES - REPORT.

In a report published on 9 April, CE Delft (Committed to the Environment) recommends that the shortfall created by the drop in the price of carbon be countered by reducing the volume of free allowances within the framework of the EU's Emissions Trading System (ETS). The low carbon price reduces the risk of relocation. Adapting the criteria for allocating free allowances within the ETS to the current situation would result in only 33% of sectors qualifying afor exemption from the scheme compared with 60% (95% of the EU's industrial emissions) currently. According to CE Delft, increasing in the demand for allowances that are bought would cause the price of carbon to increase. With tension rising on the eve of the vote in European Parliament on the freezing of allowances, the report has caused a stir.

In the report Carbon leakage and the future of the EU ETS market'(1), CE Delft re-assesses the criteria used to define the sectors entitled to receive free allowances under the carbon leakage list. The study shows that, because of the low carbon price and changes in trade intensity, the risk of carbon leakage is much smaller than was previously anticipated. This risk, recalls CE Delft, was a highly emotive issue in 2009 during design of the third phase of the EU ETS (2013-2020). As a result, major exceptions were made for sectors deemed to be exposed to the risk of carbon leakage, based on a number of assumptions regarding future trading conditions. Those conditions have changed significantly, however, and the carbon market has crashed posing a challenge to the mid-term review in 2014, which will determine which sectors are to receive free allowances...