The EU Emission Trading System
January 2015 marked the tenth anniversary of the EU Emission Trading System (ETS). A decade down the line, the system is not living up to its potential. While there is much debate on how to fix it, there is clear consensus that the ETS is in desperate need of an overhaul. Something of a sense of urgency is at last creeping in, as work has already started on the post-2020 ETS that will implement the EU’s 2030 climate targets. In this Energy Flash FTI Consulting’s experts in Research, Energy and Economic Consulting in Brussels, London and Paris take stock of the current system, its flaws and proposed fixes, examine what the ETS could look like after 2020, and analyse the impact of the ETS on emissions and business.
The ETS is one of the EU’s major tools to tackle climate change. It is the world’s largest emission trading system, encompassing more than 11,000 power stations and industrial facilities in 31 countries, as well as aviation emissions. The main logic of the system is simple: by limiting (i.e. putting a cap on) emissions and allocating permits the EU creates a carbon market where emission allowances are traded. Prices are defined by supply and demand, whereby commercial entities that emit less than foreseen when they purchased their allowances can sell their allowances to those that emit more than is covered by their allowances. Companies that reduce their emissions would see a financial benefit from their low-carbon investments and could potentially even make money. Ultimately, the aim is to incentivise investment in low-carbon solutions without damaging EU competitiveness.