The European cap-and-trade system is the first of its kind in the world to tackle carbon emissions with free market tools...and it direly needs an update. Ian Duncan, the Parliament’s rapporteur on the project, is spearheading negotiations for urgent reforms.
Sometimes we forget that one of the single biggest challenges facing our planet is the fact that it is heating up. And we have an opportunity against a ticking clock to try and reduce the temperature rise of the planet. Now we can't do it alone. The EU emissions trading scheme is the cornerstone of the EU's attempts to address climate change, and simply put, it is a way of encouraging a market-based solution. The design is basically to allow those who are wanting to pollute to pay for that pollution. So we've created a system of permits. In order to emit carbon, you must hold a certain number of permits. If you want to pollute more, or allow more out you must buy more permits. So in the beginning, it worked very well. And then came the financial crash. The consequence of the financial crash was that manufacturing itself went through a significant dip. People were simply not manufacturing and therefore they were not emitting and therefore didn't need the permits to allow them to emit. And slowly but surely, the number of permits built up. So what we have today is a huge glut of permits. There is already proposed what is called a Market Stability Reserve, which is like a bank account into which you can put the excess allowances. Well, one of the first things we've tried to do is to double the rate at which those allowances enter the bank so they're taken away faster. One of the bigger challenges of course as a continent is we have a lot of post-Soviet technology to the East, which frankly is a problem. And we need to make a way through that by innovation and modernization, so we've created funds to support the Member States in the East to help them through that. The challenge right now is that we have the structure and the mechanism; we have the car if you like; we have the engine. We just haven't got the ignition key turning yet. And until that engine starts powering the change, we are going to be falling behind.