The EU Emissions Trading System needs to deliver a long-term price of above Eur50/mt -- about ten times its current price -- the EU Parliament's lead lawmaker for carbon market reforms said Thursday.
"It needs to hit Eur30/mt, Eur40/mt, Eur50/mt and continue in that direction. Without that, you have a loss of confidence in the system," Ian Duncan, the parliament's rapporteur for post-2020 EU ETS reforms, told a conference in Amsterdam.
"People say it's not broken, it's just not going anywhere. If you had a car that's not moving, it makes no difference whether it's broken or not, it's still not going anywhere," he said.
"You need a price that's going to change the mindset of industry and change behavior. Does it work? No, it does not," he said in a presentation.
Duncan -- a Scottish Conservative MEP -- is in charge of shepherding proposed post-2020 EU ETS reforms through the EU Parliament as EU lawmakers seek to revamp Europe's carbon market going into its fourth trading phase, with prices still in single digits and an ongoing surplus of carbon allowances.
Duncan said the European Commission has acknowledged that the EU ETS will not quickly be adjusted to take account of the new global goals agreed under the UN Paris climate agreement in December.
"Paris was a success, but it was also a curse because you had a lot of work that was predicated on a 2 degrees C[elsius] target [for global warming by 2100]. That's now changed to 'well below' 2 degrees," he said.
When asked whether the Commission would take account of the new global target in the rules under the EU ETS, EU Climate and Energy Commissioner Miguel Arias Canete said no, according to Duncan.
"He said it would be something for his successor to work on," Duncan said.
"So we are facing a situation where the Paris Agreement will not be reflected in the EU ETS for Phase 4 [2021-2030]," he said.
The EU's focus will be on implementing the current targets for 2030, he said -- namely an economy-wide emissions reduction target of 40% from 1990 levels by 2030, which includes a 43% cut by sectors regulated by the EU ETS, from a 2005 baseline.
A long-term decarbonization of the economy will require even higher carbon prices in the long term, Duncan said.
"Carbon capture and storage will be unbelievably expensive. However, if we want to decarbonize the fossil fuel sector, we will need CCS, and for that to happen, you'd need a carbon price of around Eur80/mt to Eur90/mt," he said.
Europe's emissions-intensive industries are in lobbying overdrive to try to win favorable treatment under the EU ETS in the post-2020 period, Duncan said.
"The degree of lobbying is incredible. I am knee-deep in lobbyists all wanting their sector to be on the carbon leakage list [or exempt altogether]," he said, citing the list of trade-exposed sectors that qualify for free carbon allowances.
"If we stay at Eur5.00/mt we will face a very long pantomime with no laughter. That is what we are facing unless we can reform the EU ETS," he said.
While the EU ETS needs urgent reform, industry needs adequate protection and politicians must reflect the need to safeguard jobs, he said.
"That is the political reality. I will do everything in my power to drive a higher carbon price, and I will do everything I can to protect industry."
"That is my job, and if I am successful I should get a knighthood because that's a very big challenge," he said.
Duncan said he expects the proposed post-2020 reform discussions to continue until the EU summer recess and leave the parliament committee stage in the autumn, followed by a plenary vote early in 2017, "and hopefully in January."
The proposed reforms, which include a steeper annual decline of 2.2% a year in the carbon cap and more targeted assistance for trade-exposed sectors, needs the backing of the EU Parliament and Council to become law.
