Supplementarity in the European carbon emission market

In this paper we investigate emission trading within the EU and, more specifically, some proposals to impose ceilings on emission trading. We compare different proposals put forward by the EU negotiators at the international level in the framework of the Kyoto Protocol and apply them to intra-EU greenhouse gasses emission trading. It turns out that these proposals imply important differences in the distribution of emission trading gains among the EU member states. A public choice approach is used to investigate which EU countries would benefit from imposing import and/or export ceilings. We try to interpret the ceiling proposals as the outcome of a voting game among the EU member states on uniform ceiling rates. The simulations suggest that the most likely ceiling proposals match closely the interests of the big EU member states France, the UK and in particular Germany. The simulation model we are using consists of a set of marginal cost of carbon emission abatement functions calibrated to PRIMES simulation results reported by Capros and Mantzos (1999).emission trading; marginal abatement cost curves; supplementarity

Can the new European sustainable finance rules improve the integrity of voluntary carbon markets?

In this Policy Brief we assess how new and pending EU legislation on sustainability reporting and disclosure can improve the integrity of voluntary carbon markets. Corporations use voluntary carbon credits to support their net zero strategies. Over a fifth of the 2000 largest public companies have now committed to net zero. The demand for carbon credits is growing with the number of these commitments. However, the integrity of these voluntary carbon credits remains questionable in the absence of clear rules on the monitoring, verification and reporting of the carbon emissions reduction or removal at the origin of the credits for Core Carbon Principles and an Assessment Framework. Under the slogan “build integrity and scale will follow”, the Integrity Council of the Voluntary Carbon Market has published a proposal, which focuses on the supply side of the market, i.e. the producers of carbon credits. In this Policy Brief, we focus on the demand side of the market: the corporations and financial market participants who buy these credits. We found that the European Commission proposal for the Corporate Sustainability Reporting Directive could establish the world’s first explicit and legally binding reporting standard for the use of voluntary carbon credits by European companies. If both sets of rules are enacted, the voluntary carbon market would get a major transparency boost. Other jurisdictions could learn from this experience to establish their own rules. The EU itself can also learn from this proposal, as the earlier Sustainable Finance Disclosure Regulation did not provide the same clarity on how to disclose investment in voluntary carbon credits or in companies that hold them. We recommend some regulatory changes and additions in order to complete the demand-side regulation of voluntary carbon markets

Why the new climate tech finance boom might end better this time round

While records amounts of venture capital are being invested in climate tech, we ask the question what is different now as compared to the investment boom of 10 years ago which by and large ended in bust. We find that we are in a better technological position than 10 years ago, mainly due to the success in bringing the cost of solar, wind and batteries down. However, financial barriers to massive deployment of these renewable assets remain. And more than half of the emission reductions needed for net zero needs to come from technologies that are not yet mature. While the innovation finance ecosystem is more mature now than 10 years ago, the EU is still lagging behind in venture capital. Public authorities are also more supportive now, but hard nuts regarding carbon pricing need to be cracked. These challenges come together in the case of decarbonisation of maritime shipping, which is one of the so called hard-to-abate-sectors. In conclusion, although a repeat of the boom and bust of climate tech of 10 years ago is less likely, it cannot be excluded. Financiers, innovators and policy makers should act on the lessons learnt

Five reflections on clean hydrogen’s contribution to European industrial decarbonisation from 2024 to 2030

After years of record announcements, frantic policy development and the establishment of substantial public support mechanisms, the clean hydrogen sector is nearing an inflexion point. Many clean hydrogen projects have reached the technical feasibility stage, with a global pipeline of clean hydrogen projects totalling nearly 25 million tonnes (Mt) of production by 2030, much of which is in Europe. However, only 4% of those projects reached financial investment decision (FID) in 2023. This rate is already twice as high as in 2022, but still very marginal given global hydrogen demand needs to grow from 95Mt to 150Mt by 2030 to stay on track for net-zero by 2050. The key question for the coming months is: how can a critical mass of the remaining clean hydrogen projects secure financing before momentum is lost? As it stands, production project financing in Europe is likely to come through either a bilateral deal with an off-taker willing to pay a premium for a decarbonised product or via selection in one of the European auctions or wider public support mechanisms. If financing can be secured, we might see the beginning of new technological cycles rooted in clean hydrogen path dependencies within key industries. This in turn could establish the basis for the birth of a wider clean hydrogen market, driving economies of scale and ultimately facilitating deep decarbonisation of the European economy, stimulating some new manufacturing sectors in the process. However, if this first wave of projects fails to secure investment, confidence is likely to falter, and the momentum lost. Clean hydrogen has been positioned as a potential technological vehicle for industrial transformation and as a future pillar of European energy security. Record low costs of solar and wind technology have added to an expectation that a similar learning curve could materialise for electrolysers and other clean hydrogen technologies. Cheap clean hydrogen would take the energy transition where electrification finds it hard to go. However, high interest rates and a fall in gas prices after the 2022 summer peak have led to a cool-off in expectations for fast, large-scale deployment. In this Policy Brief, we give a snapshot of the state of play for the sector, complemented by learnings from the High-Level Policy Dialogue (HLPD) hosted by the EUI’s Florence School of Transnational Governance and the Florence School of Regulation on October 19, 2023

Reinventing the Climate Negotiations: An Analysis of COP6. CEPS Policy Brief No. 1, March 2001

[From the Introduction]. With the cancellation of the Oslo ministerial mini-summit, the prospects for an early entry into force of the Kyoto Protocol are rapidly fading. Even if the US agrees to an outcome at a resumed COPbis in July, continued Congressional opposition and unresolved questions concerning the developing countries’ commitments make US ratification highly implausible. This puts the European Union on the spot. The EU has declared on several occasions that if the Kyoto Protocol failed to be ratified by the requisite number of Parties, it would demonstrate its leadership by undertaking a unilateral reduction commitment. Has the EU’s hour of glory finally come? Or is it bluffing? The answer lies in whether the EU is actually able to summon up the courage of its convictions and takes the decision to ratify the Protocol unilaterally. Given the current deadlock, this may be the only way to implement the Kyoto Protocol. Moreover, it may not merely be the only way, but it may also have the effect of speeding up ratification. And speed is now of the utmost importance. The urgent reality of climate change has just been confirmed by the IPCC’s Third Assessment Report. Further delays to implementation will also increase compliance costs