Emissions trading system should be reformed, says German authority. It wants stronger enforcement

The European Union Emissions Trading System (EU ETS) is one of the EU’s primary tools for reducing carbon emissions. However, according to a new analysis by Germany’s Federal Environment Agency (UBA), it should be reformed to make it more resilient to crises. The reform should primarily ensure that the obligation to surrender allowances is consistently enforced, the agency says. This obligation is key to achieving the emissions targets of individual European Union member states.

The emissions trading system was introduced in Europe nearly two decades ago as a primary tool for reducing emissions. Under the system, selected emitters, primarily in the industrial and energy sectors, as well as aviation, must buy and surrender allowances each year for emissions directly generated by their activities. The gradual reduction in the volume of available allowances puts upward pressure on their price, which is intended to help promote low-emission alternatives.

Germany’s Federal Environment Agency has now published a new analysis that according to the Clean Energy Wire news site highlights the need to reform the system. The reform is not intended to lower allowance prices or ease pressure on European industry, but to ensure that the system can be enforced. In light of recent crises, the agency says, emitters could seek to invoke force majeure, insolvency or the closure of power plants.

“It seems reasonable to include not only a catalogue of cases of force majeure, but also regulatory tools such as bans on sales and the blocking of allowance accounts, so that the competent authority has more options for enforcing the obligation to surrender allowances despite crises,” the news site quotes the study published by the German agency as saying.

According to the study, entities affected by a crisis could be prohibited from selling their allowances, for example to improve their financial liquidity. In such a case, they could later find themselves short of allowances needed to fulfil their obligations under the ETS. Such changes would, however, require legislative amendments not only at EU level but also in individual member states.