Last Saturday (August 27, 2011) The Times featured the EU Emissions Trading System (EU ETS) on its front page. Carbon markets are becomingly increasingly important and should appear in the mainstream media, but it’s also important that the media provide accurate context to fully explain often complex issues to the public. This particular story suggested that the EU ETS was being manipulated by power companies, enabling them to pass on to their consumers the full cost of carbon on the allowances that they are granted for free:
Flawed green scheme
costs households £120
“. . . . an investigation by The Times has found. Energy companies such as Scottish Power, EDF Energy and Centrica, the owner of British Gas, have pocketed about £9 billion in free windfall profits by manipulating a carbon trading scheme.”
As with many other policy instruments, the EU ETS has changed over time and has become stronger and more effective. The issue of allowances is complicated but the simple fact is that concerns regarding the free allocation of allowances were corrected by the European Parliament way back in 2009 for the upcoming Phase III of the ETS which starts in 2013.
Let’s examine the history of the scheme. The European Commission and Parliament decided, during the ETS design and legislative process (2001-2003), that allowances should be granted for free to most participants in the first two phases of the trading system (2005-2012 inclusive). This was done to ensure the softest of starts for the EU economy, particularly for industries that exported outside the EU, or competed with imports, and therefore couldn’t pass on carbon costs to their customers. What was less recognized at the time, although anticipated by a number of observers, was that in some electricity markets, particularly the deregulated UK market, the carbon price that traded at the margin would be the one that set the electricity price, thereby granting those holding free allowances infra-marginal rent.
It may be the case that the electricity companies didn’t have to pass on the cost of their ‘free’ allowance allocation to their consumers, but it should be stressed that pricing at the margin isn’t manipulation, rather it is exactly how markets should function. For the most part, they do work this way. The price of many goods and services is set by the marginal supplier, with those able to produce the same goods or services at lower cost profiting from this.
With the benefit of hindsight, what was wrong about Phases I and II of the ETS was to create such a circumstance artificially, but as noted above, this rent opportunity ends with 100% auctioning of allowances to the power companies in Phase III onwards.
The only reason this construct persisted for a number of years is because the Commission has maintained a hands-off approach to the ETS in order to assure the market of stability and give confidence to those investing in it. It rightly took the view that the market would be much worse off if government was constantly changing the rules by which it operated. Within a known window of change the free allocation to electricity producers was ended, but could only be enacted from the start of the next operating phase, which is January 1st 2013. Auctioning for this period will begin in a few months time, in 2012.
The Times article also makes a link between free allocations, the overall performance of the market and the modest CO2 reductions achieved during Phases I and II. However, there is hardly any relationship between the reductions achieved by the system and the mechanism for distribution of allowances. The overall reduction is set by the number of allowances distributed. This then establishes the price at which allowances trade and it is this opportunity cost which guides project investors. Most experts noted that in Phase I of the ETS there was considerable over-allocation, as the Commission had limited data upon which to base the likely demand for allowances. As a result the system traded near zero for some months before Phase II got going. Phase I had no mechanism to correct for this over allocation as banking into the future was not allowed in this “learning by doing” period.
Actual CO2 reductions in Phase II continue, but the recession linked to the global financial crisis has taken some steam out of the market, as has been the case in so many sectors. Most observers now agree that a Phase II surplus is accumulating and that this will be banked forward by market participants. This has led to the call for a set-aside of allowances within Phase III which will ensure a robust CO2 price.
But none of this is related to the free allocation approach taken in Phases I and II.
The EU ETS has not been perfect, but it is a learning process that continues, evolves and improves. Other jurisdictions considering the use of emissions trading have learned a great deal from it. For example, the north-eastern US Regional Greenhouse Gas Initiative (RGGI) noted the issues with electricity producers and implemented full auctioning from the outset. We need to recognise that the European Union broke new ground with the ETS, that early teething problems have been resolved and the system is improving.
We know from both the economic theory and practical implementation (US sulphur trading system) that emissions trading / cap-and-trade is the most flexible and lowest cost approach to reducing emissions against a fixed future target. But the system constantly bares its soul for all to see through operational transparency, which in turn makes it an easy target for criticism. The alternative is to have government demand CO2 reductions, specify the power generation mix and order up wind turbines or nuclear reactors with much less price transparency and almost certainly higher cost to the consumer. In this period of fiscal uncertainty, the carbon market approach must be the preferred option.
But such good news, setting out a reasonable, measured and effective way of moving towards a lower carbon European economy, doesn’t usually sell newspapers!
I found this informative and interesting blog, so I think so it’s very useful and knowledgeable. I would like to thank you for the efforts you have made in writing this article. I am hoping the same best work from you in the future as well. In fact your creative writing abilities has inspired me. I really thought that blog is spreading its wings rapidly……
Thanks a lot.
Some tidy residential are able to advance your state of health. Any time you don’t tidy your dwelling couple of weeks, you’ll check out a event tables, bins, and so., lined accompanied by a film from allergens. A rugs and carpeting not to mention upholstery even pitfalls allergens in the future. Home who isn’t rinsed constantly not to mention the right way poses health threats along the lines of sensitivity. A specialized vacuuming system are able to get rid off much of the result in allergies show on your property. Experienced chemicals will likewise tidy parts most people pretty much never find and / or need enough time to tidy. That will stay away from a lot allergens bunnies not to mention fungal on your property. cleaning company in dubai
Redesigning projects often get started with someone announcing, “Wouldn’t them be awesome if…? ” usually with a choose to a remodelled kitchen or perhaps room accessory for space to fit every relatives member’s demands. More normally than never, reality plus dreams really don’t coincide, resulting from limited capital for seeing the goal, or limits to the available space or room. The secret: turning a person’s dreams within reality. Get started with a genuine evaluation within your needs. Homeowners often consider dwelling improvements for among the list of following explanations. http://www.isellpittsburghhomes.com
Relating this to the musical world, a music festival is an event celebrated by a group of music-oriented people. https://2011hiphop.com/ However, a music festival is a festival oriented towards music that is sometimes presented with a https://2011hiphop.com/tag/nasty-c/ theme such as musical genre, nationality, or locality of musicians, or holiday.
I think I have never seen such blogs ever before that has complete things with all details which I want. So kindly update this ever for us
At the point when you are prepared doing all that we have discussed in the past sections, which is thinking about your shopping list with cautious arranging exactness, discovering the medications you require recall that we have an incredible number of sildenafil pills, which are conventional Viagra tablets in their various versions, structures and measurements and sending them to the shopping basket, you will be diverted to the page with your own subtleties. at the point when I have time I will have returned to peruse much more, Please keep up the When I take a gander at your blog in Chrome, it looks fine however when opening. 바카라사이트추천
I have been searching to find a comfort or effective procedure to complete this process and I think this is the most suitable way to do it effectively. I am really enjoying reading your well written articles. It looks like you spend a lot of effort and time on your blog. I have bookmarked it and I am looking forward to reading new articles. Keep up the good work. Thanks for posting this info. I just want to let you know that I just check out your site and I find it very interesting and informative. I can’t wait to read lots of your posts. It should be noted that whilst ordering papers for sale at paper writing service, you can get unkind attitude. In case you feel that the bureau is trying to cheat you, don’t buy term paper from it. 메이저사이트추천
Interesting topic for a blog. I have been searching the Internet for fun and came upon your website. Fabulous post. Thanks a ton for sharing your knowledge! It is great to see that some people still put in an effort into managing their websites. I’ll be sure to check back again real soon. This particular tools are extremely important to me whenever I require because they help me get the practical analysis of my project completed . New web site is looking good. Thanks for the great effort 토토