Fortum, Statkraft and Vattenfall, the three largest Nordic utilities, today present a joint proposal for a Policy Coherence Mechanism to improve coherence between the EU Emissions Trading Scheme (ETS) and other policies. The proposal can be implemented in the framework of the EU Governance Regulation that is currently being discussed by the EU institutions.
Policies that overlap with the EU ETS are a significant contributor to its current ineffectiveness. To date, 1/3 of the surplus of allowances in the ETS has originated from intersecting policies, according to the findings in a new report. The oversupply may continue to grow in the future as a result of incoherent targets and new policies in the 2030 framework.
On the initiative of the three utilities, Pöyry Management Consulting has developed a mechanism to deal with this overlap in a structured and predictable manner. The Policy Coherence Mechanism aims at adjusting the ETS for future policy overlaps rather than seeking to retroactively correcting for the surplus of allowances resulting from such policies. The report is launched today in the European Parliament.
This Policy Coherence Mechanism ensures that the overlapping policy has a real environmental benefit – as the amount of allowances is reduced and not just redistributed in the system. The mechanism has no impact on the free allocation of allowances to the industry to protect it against carbon leakage.
Fortum, Statkraft and Vattenfall believe it is crucial to embed a mechanism in the EU Governance Regulation to mitigate the unintended effects of other European and national policies on the demand of allowances and resulting surplus in the carbon market. The proposed mechanism is key to deliver a more effective ETS and to facilitate the cost efficient transformation of the energy sector towards innovative and low-carbon technologies.
A robust Policy Coherence Mechanism should be broad in scope and promptly neutralise the unintended impacts which other policies have on the EU ETS: