A more ambitious reform needed to salvage the EU ETS

The European Emissions Trading System (ETS) needs a more ambitious reform than proposed by the Commission in 2015. As numerous EU wide and national policies affect the ETS, there is no silver bullet to address all the shortcomings of the existing system.

Only a combination of stronger short-term and long-term measures can provide the reform much needed to rebuild confidence in the system.

These are the key messages of the study contracted to the French consulting company FTI-Compass Lexecon Energy by a group of large European power companies EDF, ENEL, EDP, ENGIE, Fortum, Iberdrola and CEZ. The study report was introduced in Brussels today.

«Most of future investments are currently on hold across Europe because a clear and robust long-term carbon price signal is missing. The confidence on a truly European, market-based instrument, the ETS, is at risk and the window of opportunity to fix it is closing soon. We need a clear signal to secure the competitiveness of existing low carbon capacities and future investments,» Pekka Lundmark, President and CEO of Fortum, highlighted in the launch event.

The study has analysed in-depth several options to reform the ETS regarding their impacts on the supply-demand and prices on the carbon market as well as on future emissions trajectory. The analysis shows that with the proposed ETS reform Europe would miss its long term emissions target. However, the analysis also shows that several combinations of options are available to rebalance the carbon market and align the ETS with the long term EU targets.

In Fortum’s view, the redesign of the market stability reserve (MSR) combined with an increased linear reduction factor (LRF) could be one of the most efficient combinations to improve the functioning of the system. At the same time, it is necessary to improve the coherence of the overlapping policies and adjust the ETS accordingly. «We do have many options to fix the ETS. Now we simply need political will and legislative agility to reform the ETS to its original ambition,» Lundmark concludes.

Fortum Corporation
Group Communications

Read more:
Pekka Lundmark’s speech at the report launch event on 8 November 2016

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