Another point for the carbon market revamp: interlinkages between the current valuation of carbon permits and the tiers monitoring framework.
The article EU ETS cost/benefit analyses based on artificial and unrealistic assumptions referred to the fact that M&R Regulation applies a constant allowance price of 20 € as an input for important business estimations and assessments which leads, in turn, to the overestimation of the benefits potentially achievable where more strict monitoring requirements are used by operators.
Among practical examples of this EU ETS broken architecture are tiers being monitoring data quality levels (for dossier on tiers see: Tier thresholds under the EU ETS M&R Regulation).
M&R Regulation in respectively: Article 26 of the for calculation-based methodology and Article 41 for measurement-based methodology stipulates that the competent authority may allow an operator to apply lower tiers provided, among others, the operator shows to the satisfaction of the competent authority that the tier required is technically not feasible or incurs unreasonable costs.
The notion of “unreasonable costs” is directly linked to above-mentioned 20 € price for an emission allowance.
Higher tiers are in general, more difficult and costly to meet than lower ones (e.g. due to more expensive measurements applied).
In effect, when trying to convince the competent authority that the tier required incurs unreasonable costs, the operator must calculate the potential benefits, flowing from, for instance, more accurate measurements, using an allowance price four times higher then the current market valuation. Thus, contrary to the cost-effectiveness and theoretical assessments made in the way required by the M&R Regulation, the more accurate meters in fact can’t bring the operator any real monetary savings.
In conclusion, the current framework for emissions monitoring tiers under EU ETS rules may be perceived as overly prescriptive
It is difficult to cope with the said problem, since the above-mentioned constant price for carbon is directly set by the M&R Regulation and the competent authorities rather do not have the flexibility to amend this valuation.