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IETA's reflections on a flexible supply in the EU-ETS, October 2, 2013

02 Oct 2013 12:00 AM | Anonymous

Initial IETA reflections on the concept of an “Automatic Adjustment of Auction Volumes” in the EU ETS

An IETA contribution to proposals to make the EU-ETS more resilient to changes in external circumstances.

Executive Summary

IETA is closely engaged in the discussions concerning reform of the EU-ETS and the EU’s framework on climate and energy towards 2030. IETA believes it is of paramount importance for these debates to re-center the EU-ETS as the EU’s central climate policy instrument. Structural improvements to the EU-ETS are closely linked to the EU’s long-term ambition towards 2030. This paper does not reiterate IETA’s vision for a comprehensive EU ETS reform, which have already been outlined in our reply to the European Commission’s consultation in March 2013 and include, better managing the interaction between the ETS and other policy mechanisms, the continued role for international credits, exploring the possibility of output based free allocation and the introduction of a dynamic reserve. This paper focuses on the latter aspect of managing the level of supply of allowances according to changes in demand and offers some criteria and thoughts on how such a mechanism might work in practice should policy makers choose to pursue the idea further. It should be stressed that this reflection paper does not prejudge policy makers’ choice on the need for and means of comprehensive reform and whether or not a mechanism to introduce supply flexibility can or should substitute for such wider reform.

The purpose of this paper is to share market operators’ reflections on how such a mechanism might look in practice, should there be a decision to introduce it as a means to strengthen the resilience of the scheme by redesigning the way supply reacts in the system and avoiding imbalance with demand levels.

As part of the reflection on whether or not to introduce such a mechanism, it is important to assess first of all whether it would lead to an improvement on EU-ETS market functioning compared to having no intervention. It is also essential to set out the criteria that any such a mechanism should fulfill and to evaluate the pros and cons of introducing such a mechanism and potential alternative designs.

IETA members look forward to engaging positively in these discussions in the coming months, and may update its reflection paper depending on how the debate evolves.

Access the full document here

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