Emissions Trading Reform

At present the emissions trading scheme only partially fulfils its function as a climate action instrument. Although the instrument as such works properly and the envisaged reduction targets are being reached, due to the accumulated surplus of allowances it does not offer enough incentive to cut emissions. There are two main reasons for this surplus: firstly, the unforeseeable severe crisis with resulting production shortfalls and reduced demand for allowances and secondly, excessive possibilities for the use of allowances from climate projects in third countries under the Kyoto Protocol. However, assumptions concerning the expanding use of renewable energy sources and energy efficiency improvements when setting the cap proved to be realistic EU-wide and have not caused any surpluses.

At present there are discussions on three possible measures to stabilise emissions trading in the short run and to promote it in the long run:

  • Retaining auction volumes at the beginning of the third trading period and releasing them at the end of that period (referred to as "backloading") as a short-term measure (already agreed).
  • Introducing a market stability reserve which would adjust the amount of allowances on offer in accordance with fluctuations in demand and ensure stability. The EU Commission has drafted a legislative proposal on this.
  • Raising the ambition level of emissions trading when setting the EU climate targets for 2030.

It is important to get emissions trading swiftly back on track again with these measures in order to avoid losing valuable time, maybe years, in the sectors affected. For this reason, the German Government supports the Commission's proposal on the structural reform of emissions trading, however it does not consider starting early in the year 2017 to be necessary. Furthermore, the allowances held back under the backloading scheme should be transferred directly into the reserve so as to quickly reduce the surpluses.