EU Will Tighten Cap to Fix Carbon Price Collapse
The EU now has ten times the solar power of the US, twice the wind, and it dominates the global offshore wind industry. As a result, and as a mark of the ease in meeting its Kyoto goal and already lowering its carbon emissions 8% below 1990 levels for its first deadline, the price on carbon has plummeted.
Once a carbon reduction goal is met, there is less need to buy carbon permits, so the carbon price in Europe has collapsed. The Commission, which oversees the European Trading Scheme (ETS) cap and trade markets, over-estimated the difficulty in covering emissions in the 2008-2012 period, resulting in over-supply of carbon permits.
Two possible solutions are under discussion. One is to raise the target and the other is to tighten the cap.
The next goal post, in 2020, was for 20% reductions below 1990 levels. This could realistically be raised to a more ambitious 30% reduction as Europe’s wind and solar sectors mature.
About 60% of the reductions are allowed to be in foreign investment in renewable energy. This is a key reason that an increasing number of third world solar mega-projects like Desertec are getting off the ground. Instigated by Swiss Re, (the insurer of insurers that stands to go bust under a climate disruption scenario) and other German banks and engineering firms, DII as it is now known, the Desertec Industrial Initiative is the visionary plan to provide 15% of the entire continent’s electricity powered by solar from the Sahara.
The other 40% had to be from projects within Europe itself, which led to the EU installing 29 GW of solar in just five years, ten times the amount that the US had, and twice the wind power at 84 GW, as well as controlling 99% of the burgeoning offshore wind industry. (Previous story: 141 GW of European Offshore Wind Under Way.)
(Related: Why DOE-Funded Floating Turbines May Change Future of Off Shore Wind.)
The other option is to retire carbon permits, an option that was built into the original legislation to deal with a glut. Last week a vote was taken to withhold a “significant” number of permits from the market, to create a shortage and increase prices for the next round, essentially tightening the carbon limit or cap.
Even just the proposal to retire carbon permits jolted carbon prices 30%, according to Environmental Finance.
According to the proposal, which got a clear majority vote in European Parliament’s cross-party environment committee, the European Commission would amend the law to withhold a substantial number of carbon permits from the third phase covering the period from 2013 to 2020. Then a vote would be held at the end of January by the full EU Parliament industry committee, and then it would have to be approved by the whole Parliament and the Council of Ministers, representing all of the member states.
That process might sound impossibly daunting to a US reader familiar with the US congress, but the EU has much better protection of the democratic processes against corporate influence or front groups like the Tea Party lobbying for the fossil fuel sector. Also, the media is less corrupted, the education system is better, and over 80% of Europeans vote, compared with under 50% in the demoralized US.
So it is very plausible that the EU will actually decide to take one (or both) of these two routes to solving the “problem” of its success in meeting Kyoto, that its carbon prices have dropped so low.
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