You are here: Home Knowledge Base The EU’s Emission Trading System: More Than Hot Air? Virtual Library What’s needed to fix the EU’s carbon market. Recommendations for the Market Stability Reserve and future ETS reform proposals
Symposium 2015

Virtual Library File - What’s needed to fix the EU’s carbon market. Recommendations for the Market Stability Reserve and future ETS reform proposals

The Challenge

The EU's emissions trading system (EU-ETS) is the largest existing emissions trading scheme. This scheme is the main economic climate policy instrument of the EU, and it also serves as a blueprint for ...

The EU's emissions trading system (EU-ETS) is the largest existing emissions trading scheme. This scheme is the main economic climate policy instrument of the EU, and it also serves as a blueprint for other emissions trading schemes world-wide.

In 2014, the EU agreed on new and ambitious emissions reduction targets for 2030. While the EU-ETS is considered a key instrument in reaching these new targets, its effectiveness has been impeded by low carbon prices that fall short of providing the necessary incentives for urgently needed technological changes. So far, attempts to change this incentive structure have failed. The Reform proposed by the European Commission, the so-called Market Stability Reserve, will probably not go far enough for various reasons.

Carbon Market Watch is an initiative of several international NGOs that scrutinizes carbon markets and advocates for fair and effective climate protection. In its policy paper it proposes the following six fixes to the EU’s carbon market:

  • Ensure that the EU ETS is designed to be in line with the 2050 objective of reduction emissions by 80-95% by increasing the linear factor by which the ETS cap is annually reduced to at least 2.6%
  • Protect the domestic nature of the 2030 GHG target by removing at least 1.6 billion of the excess allowances.
  • Avoiding carbon price hikes by enacting the Market Stability Reserve at the earliest possible date (2017).
  • Disallow the use of international offsets after 2020 as it delays domestic abatement efforts and has not proven to lead to real mitigation in host countries.
  • Introduce full auctioning for all industrial sectors post 2020 to reflect the polluter-pays-principle.
  • Establish an EU climate fond to be replenished by a portion of the ETS auctioning revenues