Oslo, 29 April 2010

Europe’s cap-and-trade scheme could be tightened from 21 to 34% below 2005 levels by 2020. The move would form part of an overall deepening of the EU’s emission reduction target to 30% below 1990 levels from its current 20% goal, according to a draft version of a European commission paper. Such a deepening is “technically feasible and economically affordable”, according to the paper, seen by Point Carbon News today.

It states that any deepening of the overall goal could be met most cost-effectively by splitting the contribution between the ETS and non-traded sectors by the same proportions that were agreed when setting out the 20% commitment in 2008.

This would cut the target for sectors outside the cap-and-trade system, which include emissions from buildings, transport and housing, to a 16% reduction under 2005 levels, compared to the current goal of 10%, the document said.

In March, the executive was tasked to produce the outline by Europe’s climate commissioner Connie Hedegaard. The completed document is expected to be delivered to EU leaders in June.

Cheaper Cuts

The commission paper reckons the economic downturn of the past 18 months has slashed the cost of the move to a 30% overall reduction commitment by almost a third.

Switching to the deeper goal would be EUR 22 billion ($29.1 billion) cheaper than the executive estimated it would cost two years ago.

The executive now reckons that reducing EU greenhouse gas pollution by a further 10 percentage points will cost EUR 33 billion in 2020, equivalent to 0.2% of the bloc’s GDP.

The document states that the economic downturn has reduced the costs of complying with ETS targets considerably.

However, the slump has seriously hampered the cap-and-trade scheme’s role in driving investment in clean technologies. “Additional measures seem to be necessary to allow the ETS to continue to play its role as an EU-wide market-based instrument to incentivise low carbon investment in a wide range of sectors of the economy,” the report said.

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