The EU emissions trading scheme will fail to deliver a reduction in emissions, warns independent market analyst Datamonitor, suggesting that an over-allocation of emissions credits has subdued the price of carbon sufficiently to kill off genuine investment in carbon abatement.
With volatile gas prices and Europe awash with credits, the price is simply too low to persuade generation companies to switch away from cheaper coal.
Energy and utilities analyst Paul Stewart says: “Of the 23 member states that reported their first year emissions on time, only Austria, Ireland, Italy, Slovenia, Spain and the UK were short of credits. Germany, the largest emitter in the scheme, accounting for over a quarter of the EU’s overall quota, had over-allocated by 4.5%.”
Furthermore, the company warns, a lack of policy cohesion continues to undermine attempts to get things right in phase 2 of the scheme.