EU emissions trading scheme oversupplied until 2024

The EU’s emissions trading scheme could be oversupplied until 2024 according to a study by the Oko-Institut. The oversupply of credits has meant a very low price of carbon since the introduction of the scheme in the EU.

Specifically a surplus of around one and a half billion emission allowances is predicted to accrue by the end of the decade, which is due to a combination of oversupply, a slackening in demand due to the global financial crisis and importing of credits from other systems, such as the Clean Development Mechanism. The price of carbon has now fallen 60 per cent over the past year.

Another problem foreseen by green businesses and groups like WWF are that increasing energy efficiency is driving emissions cuts, decreasing demand for carbon credits.

Proposals from the EU mean the system could become more useful in a shorter space of time. Setting aside permits from the next round of auctions would restrict the number of credits on the market and help drive the price of carbon up. Current proposals for this however, are too weak, as they allow for a return of the withheld credits to the system at a later date.

Jason Anderson of WWF says that other measures must complement the reduction of auctioned permits in order to create the desired change. "The EU Commission's upcoming proposal to backload or set-aside emission allowances must be accompanied with ideas to effectively cancel these allowances as soon as possible. Member states must raise the overall adequacy of EU climate policies and adopt a higher target."