LONDON (Reuters) - The European Union’s emissions trading scheme (EU ETS) makes companies consider more low-carbon investment but it could be improved to strengthen its impact, a report said.
The EU ETS caps the emissions of EU industry, forcing factories and power plants to buy carbon permits to cover their emissions output.
It has been criticized for not having a high enough carbon price to enable low-carbon investment, as well as for a string of scandals including tax fraud and, most recently, theft.
Based on interviews with 800 manufacturing companies, firms that expect stricter permit allocation in the future are more likely to invest in low-carbon technologies, the study led by analysis firm Climate Policy Initiative and international climate change organization Climate Strategies said.
The EU ETS’ third trading period will run from 2013 to 2020, when a tighter cap on emissions will be implemented and less permits distributed.
Around 40 percent of firms surveyed said the current, second trading period (2008-2012) had largely allowed them to operate as usual. But from 2013, only 10 percent of firms expect to continue business as usual.
The EU aims to reduce emissions by 20 percent by 2020. This goal makes companies think climate policy is relevant. However, most firms do not yet consider the 2020 target high enough to trigger a shift to low-carbon technologies, the report said.
The EU ETS currently caps emissions so they fall at a rate of 1.74 percent per year from 2013 until 2050. However, this only results in emissions reductions of 47 percent by 2050, well below the EU’s commitment of 80 to 95 percent.
“This points to a need for further tightening of the EU ETS cap to align the policy instrument with the policy objective,” the report said.
To increase the stability of the EU carbon price, the report suggests tightening emissions targets rather than introducing a carbon floor price, if policymakers think the stringency of the EU ETS is insufficient.
Firms consider some other factors as more important than the EU ETS when making investment decisions, the report said.
Power firms say access to fuel and public reaction to new installations are important when making investment decisions.
Power technology companies consider incentives such as feed-in tariffs as the most important measures for their sales and research and development investments.
Editing by James Jukwey