With respect to the Emissions Trading System the Draft Report ‘acknowledges that the carbon price is very much lower than was originally envisaged and is failing to provide the necessary investment stimulus’, and proposes to recalibrate the ETS before the commencement of the third phase by setting aside allowances to restore scarcity.
The Draft Report presents also some other quite revolutionary theses, notably the modification of 1.74% annual linear reduction factor, the reserve price for the auction of allowances, reducing greenhouse gas emissions from agriculture, time limits for new sources of electricity generation emitting more than 100g CO2/kWh and border adjustment measures requiring importers of products in carbon leakage sectors to purchase allowances – all of them of potential fundamental impact on European industries.
The Motion for a European Parliament Resolution on a Roadmap for moving to a competitive low carbon economy in 2050 (2011/2095(INI)) contained in the Draft Report of 28 October 2011 prepared for the Committee on the Environment, Public Health and Food Safety by the Rapporteur Chris Davies (hereinafter referred to as “Draft Report’) notes ‘that the huge surplus of allowances now held by companies, together with anticipated further improvements in energy efficiency, means that there will be no significant recovery in carbon prices unless reforms are made’.
The Draft Report also calls on the Commission to adopt measures to correct the failings of the ETS and to allow it to function as originally envisaged, in particular by taking the following steps before the end of 2012:
(a) recalibrating the ETS before the commencement of the third phase by setting aside allowances so as to restore scarcity, thus allowing the original objective of providing incentives for investments in low carbon technologies and energy efficiency measures to be met, and thereafter proposing a legislative act to enable such allowances to be eliminated;
(b) proposing legislation before the end of 2013 to modify from the earliest appropriate date the 1.74% annual linear reduction requirement to a value sufficient to meet the requirements of the 2050 CO2 reduction target;
(c) proposing legislation to establish from the earliest possible date a reserve price for the auction of allowances;
The Draft Report seems to be quite influential with regard to the prospects of coal-fired power generation in the EU because it calls on the Commission to propose legislation before the end of 2013 requiring, from 2015, that new sources of electricity generation that emit more than 100g CO2/kWh shall not have a permit to operate for more than ten years unless intended solely as peaking plant with operating time limited to 10% of the total in any one year;