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Predictability in the Administration of the EU ETS as a Foundation for Market Confidence PDF Print E-mail
EU Emissions Trading Scheme
Thursday, 01 March 2012 11:33

A protracted recession and fragmented carbon market policies in the European Union and its member states threaten to undermine the perception of the EU Emissions trading Scheme (EU ETS) as a blueprint for the future of emission trading schemes in the rest of the world. A key challenge for the ETS has been an oversupply of emission allowances resulting from optimistic assumptions concerning the economy. An oversupply of allowances creates market uncertainty and undermines incentives for investment in renewable energy and energy efficiency.

It would be wrong to conclude that the EU ETS is failing, the International Emissions Trading Association (IETA) says in a new position statement, and the proper response to economic volatility should not be a series of ad hoc market interventions. In order to provide an investment climate that provides sufficient confidence to support robust investment in green technology and renewable energy (the very investment needed to establish a trajectory for long-term economic growth), the European policy makers must show that they have a responsive but unwavering game plan.

At the heart of concerns over an inconsistent regulatory approach is a recent vote by an EU parliamentary committee for measures that would establish a set-aside for carbon allowances (removing a number of allowances from the ETS), reducing the oversupply of carbon allowances that has resulted from a weak EU economy.