We need an even stronger EU Climate Policy

Global leaders are postponing the negotiations on a new binding emissions reduction treaty until 2015, coming into effect no sooner than 2020. The UN and the EU focus their climate policies on the prevention of a 2°C global mean temperature (GMT) rise by 2100, relative to pre-industrial levels, which implies that emissions have to peak and decline before the end of this decade. Since strong mitigation action remains absent, studies show that a 4°C rise, by 2100, is at least more likely. Although the emissions from developed countries have largely stabilized, those of emerging economies (BRICS) have doubled mostly due to the growing international trade between industrialized and developing countries.

The EU, the global leader in climate action, has set up an emissions trading system (ETS). Established in 2003, operationalized in 2005, and implemented into three phases covering 15 years, the EU ETS aims to reduce emissions by 20% by 2020 and 80% by 2050, relative to 1990 levels. The EU ETS is a cap-and-trade market-based mechanism, which means that the EU places a cap on emissions, creates emissions allowances in correspondence with the cap and distributes these allowances to the users mandated to comply with the cap. Although the EU ETS has been criticized for gaps in information, insufficient or wrong incentives, low carbon prices, uncertainty about long-term pricing, high transaction costs and the overallocation of emissions permits, it claims to have lowered emissions in its first two phases. Nevertheless, because of overallocation of emission entitlements together with the possibility of offsetting (extra emissions permits can be obtained by investing in abatement projects in developing countries), a vast amount of surplus entitlements remains on the carbon market and it is estimated that this will be felt throughout the ETS third phase (2013-2020) and possibly long afterwards. Even more worrisome is that the number of surplus entitlements is so high that it renders the 2013 cap irrelevant. Furthermore, because of the oversupply, emission permits' prices figure around US$4.75/US$6.17 per tonne of CO₂ while a recent study by Rogelj and collegues (Nature 493: p.79-83) estimates that the carbon price should figure around US$30.75/US$40 in order to limit global warming to 3°C global mean temperature. Although The European Commission has proposed long-term structural measures to strengthen the EU ETS, it struggles to overcome the political opposition (most notably by Poland) to implement even a temporal fix, i.e. delaying the auction of a number of entitlements.

In a paper recently published in Climate Policy, we assess the EU ETS according to Simon Caney's two criterions of justice, namely, (1) an effectiveness criterion (does the policy actually lower emissions?) and, (2) a burden-sharing criterion (does it distribute the burdens fairly?) We argued that by grandfathering emission allowances (i.e. handing out allowances cost-free) the EU ETS violates the second criterion. Furthermore, we stated that because of the malfunctioning offsetting system, the EU ETS violates both criterions. However, since the EU promised to start auctioning entitlements as a default allocation method at the beginning of the ETS's third phase (2013) we deemed the EU ETS eligible of partly complying with the two mentioned criterions.

With these considerations and facts in mind, it becomes clear that we need an even stronger climate policy. Although a diverse array of NGO's are demanding that the EU ETS gets scrapped we deem it ethically necessary that the EU ETS gets strengthened. Seeing the climate of political inaction, it is very unlikely that a new policy would be put in place in time. Therefore, we advocate that the EU implements at least some of the long-term measures proposed by the European Commission, inter alia: retire a number of allowances permanently, limit the possibility of offsetting, increase the EU reduction target to 30%, extend the scope of the ETS to sectors currently not covered, etc. Although we applaud the EC's initiative to mend the EU ETS, we do regret that the EU would choose to do so through a short term fix instead of through structural long-term measures.

With emission trading schemes being voluntarily deployed in a number of countries and regions, it is of pivotal importance that the EU, as frontrunner, reaffirms its most honorable position of leading-by-example. The window of opportunity to fight off climate change's most severe consequences is rapidly decreasing. Hence, the EU ETS - the largest existing climate policy tool in the world - needs to be adjusted so that it respects the demands made by justice and thus lowers emissions while mandating a fair burden sharing. The time to act is now.