Failed Emissions Trading Reform 'The End of a European Climate Policy'

Europe's once celebrated cap-and-trade system to limit carbon emissions has languished. The economic crisis has caused the price of emissions licenses to plummet, and a recent remedy to the problem has been rejected by EU lawmakers. Climate policy expert Felix Matthes tells SPIEGEL ONLINE that an opportunity has been squandered.
Much of Germany's energy supply still comes from burning brown coal.

Much of Germany's energy supply still comes from burning brown coal.

Foto: Patrick Pleul/ picture alliance / dpa

The European Parliament on Tuesday voted down a proposal to make it more expensive for companies to burn fossil fuels, in what environmental advocates are calling a major setback in the fight against climate change.

The European Commission, the EU's executive branch, had proposed measures that would have increased the price per ton of emitted carbon dioxide that companies must pay under the bloc's Emissions Trading System  (ETS), which was set up in 2005. EU lawmakers narrowly rejected the bill 334 to 315, with 63 abstentions.

The ETS was initially lauded by environmental advocates as the world's most ambitious effort to combat climate change . The number of certificates granting permission to emit carbon dioxide is capped, and companies can trade those certificates on the open market, in theory giving an economic incentive to invest in cleaner energy.

However the economy slump in Europe has caused the price of the emission certificates  to drop dramatically, currently hovering around €5 ($6.50) per ton of carbon dioxide. The European Commission's plan would have delayed the auctioning of 900 million additional pollution certificates. While the European Parliament voted down the bill, it sent it back to committee for revision, leaving the door open for future reform.

SPIEGEL ONLINE spoke with climate policy expert Felix Matthes about the consequences of the proposal's failure.

SPIEGEL ONLINE: What does this vote mean for the emissions trade?

Matthes: This will have grave consequences. The price for certificates, which is already much too low today, will collapse. On top of that, I foresee a re-nationalization of climate policy.

SPIEGEL ONLINE: Is Europe-wide emissions trade threatened with extinction?

Matthes: I would go even further: The decision means the end of a European approach to climate policy. The paradox is that all the politicians who are constantly calling for more harmonization of climate policy in the EU and internationally are sending the policy back to the national level. That is an enormous step backwards -- also for global climate policy. Even China  is now starting to pursue emissions trade. South Korea and Australia have already implemented it, and California has started a very ambitious system.

SPIEGEL ONLINE: Why do you find emissions trading so important?

Matthes: The advantage is that you can connect the systems worldwide. That would achieve what the United Nations has been unable to accomplish for years -- a global climate policy. And this opportunity is being intentionally destroyed.

SPIEGEL ONLINE: Why did the parliament reject the Commission's reform?

Matthes: There were largely two kinds of opponents. For the larger contingent, the opposition on the right, this wasn't at all about emissions trading. They want to break the climate change policy itself. And they might even manage to do that on the EU level. But they won't achieve that in Britain, France and Germany. The big member states have agreed on this policy. The German government is a leader with its transition away from nuclear energy.

SPIEGEL ONLINE: But there was also opposition from the left.

Matthes: Yes. They say it's not good for the markets to regulate it. They want environmental protection by other means. But they recognize that we need efforts that are feasible on a global scale. CO2 taxes and renewable energy laws are interesting tools, but in the end they are not feasible across the globe. Emissions trading, despite all its problems, is the measure with the greatest perspective. And now it's being broken.

SPIEGEL ONLINE: In its current form, emissions trading has proven ineffective. The certificates have become so cheap that investments in environmentally friendly technologies aren't worth it anymore. What happened?

Matthes: There are two main reasons for the problem. The first is that no one could have imagined an economic crisis of the proportion that we experienced in 2008. Economic activity in 2020 will be 15 to 20 percent lower than what we expected in 2008. That also means less energy consumption and industrial production, resulting in a surplus of some 500 million certificates.

SPIEGEL ONLINE: What's the second reason?

Matthes: Europe's Emissions Trading System is very generous in recognizing emissions reduction certificates from projects in China and other places as equal measures. So 1.5 billion certificates have flooded into the system, which you can see in today's current prices of just a few cents. There's no real emissions reduction there. We in Europe always assumed that the price could never realistically fall below €10. Now there are certificates for 30 cents and less. All together that means that there's a surplus of 2 billion certificates in the system. That just about corresponds to the annual CO2 emission of all regulated facilities. The tightening (of certificates) would have been a signal to the markets and the world that an effective emissions trading system will be in place beyond 2020, and it would have built the decisive framework for a long-term climate policy. The European Parliament has squandered this chance.

Interview conducted by Christian Teevs