The recently revised EU Emission Trading System`s (ETS) rules allow governments to remove carbon permits from the market in case of a power station closure. ‘Puncturing the coal bubble’ under the EU ETS aims at mobilizing citizens and civil society organisations in EU member states to put pressure on their governments to remove at least 200 million carbon permits. Fewer carbon permits in the system will help trigger a virtuous circle by driving up the carbon price, making remaining coal plants economically unviable and accelerating their closure.

Clean Deal: ‘Puncturing the coal bubble’

Carbon Market Watch’s mission is to ensure that carbon pricing policies drive a just transition towards zero-carbon societies.

The recently revised EU Emission Trading System`s (ETS) rules allow governments to remove carbon permits from the market in case of a power station closure. At the same time, several governments have committed to phasing out coal, which presents an opportunity for the EU to ramp up its climate ambition. To capitalize on this opportunity, Carbon Market Watch proposes to launch the project

CLEAN DEAL: Puncturing Europe’s coal bubble.

‘Puncturing the coal bubble’ under the EU ETS aims at mobilizing citizens and civil society organisations in EU member states to put pressure on their governments to remove at least 200 million carbon permits. Fewer carbon permits in the system will help trigger a virtuous circle by driving up the carbon price, making remaining coal plants economically unviable and accelerating their closure. This, in turn, will bring immediate climate benefits and allow the EU to increase its climate targets and show global climate leadership.

The project will target coal and climate campaigners, journalists and citizens through a set of outreach, communication and mobilization activities.

The EU’s Emissions Trading System (ETS) is Europe’s flagship tool to fight climate change and the largest carbon market in the world, covering emissions from over 11,000 installations in the power and industrial sectors. An effective carbon price can incentivise the phase-out of fossil fuels, stimulate innovation and raise funds for a just climate transition, offering a pathway towards meeting the Paris Agreement goals.

Unfortunately, the EU ETS has not been able to provide a price level that triggers clean investments and fuel switching from coal to renewables in the past 5 years. An oversupply of emission allowances had depressed the carbon price to levels as low as €4/tCO2 in 2013. This is 10 to 20 times lower than the price that leading economists say is required to keep global warming in check.

Provisions to address the oversupply of emission allowances and the low price were adopted earlier this year as part of the revision of the EU ETS for the post-2020 period. Policymakers agreed to withdraw surplus allowances at a faster rate to raise the carbon price, which has reached double digits for the first time since 2011. However, despite this recent rise in the carbon price, polluting is still too cheap to trigger the necessary catalytic shifts towards decarbonisation in key emitting sectors.

Analysts moreover have indicated that the recent increase in the carbon price might not be sustained in the medium-term. The decision to increase the EU’s 2030 energy efficiency and renewable targets, as well as upcoming national coal phase-outs, could add more surplus to the market than what is taken out (and put into the market stability reserve), resulting in a more oversupplied market once again.

The opportunity 

The recently revised EU ETS rules also offer, for the first time, an opportunity for governments to remove carbon permits from the market in case of a power station closure. Article 12(4) of the EU ETS directive specifies that member states can cancel allowances from their auctioning volumes up to an amount equal to the average emissions of the electricity plant over a period of 5 years preceding its closure.

This opportunity can be utilized to cancel ETS surplus and ramp up climate ambition as several governments have committed to closing their coal plants (incl. France, the Netherlands, Italy, Portugal and Finland).

To capitalize on this opportunity, Carbon Market Watch proposes to launch a ‘CLEAN DEAL: Puncturing Europe’s coal bubble’ movement - a campaign that mobilizes citizens and civil society organisations in EU member states to call on their governments to remove carbon permits.

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