Once celebrated as the best policy instrument for curbing harmful greenhouse gas emissions, emissions trading seems to be attracting new critics every week. Europe’s cap-and-trade scheme, the EU Emissions Trading System (EU ETS), has come under particular scrutiny. With carbon prices falling from around EUR 30 in 2008 to lows of under EUR 3 in April 2013, voices from within and outside of Europe are challenging not only the region’s choice of instrument, but also its willingness to take ambitious climate action.

Is all the criticism of Europe’s flagship policy justified? And are cap-and-trade schemes still the go-to climate policy that we should be promoting globally?

Critics are wrong to pronounce the demise of the EU ETS, but policymakers should go beyond small adjustment measures, such as the decision to temporarily hold back the sale of allowances, to fix its carbon price. Internationally, the importance of emissions trading is growing as new schemes emerge. Discussions of the benefits of emissions trading should make way for efforts to ensure the optimal design of new systems that can ultimately be interlinked.

Source: Environmental Defense Fund

Critics should remember that the most important job of cap-and-trade schemes is to ensure the reduction of greenhouse gas emissions. The EU emissions target is enforced through a mandatory emissions cap, a tightly controlled monitoring system, and heavy fines for non-compliance. The cap is declining by 1.74 percent year by year for the sectors covered under the scheme. Other policy initiatives—such as feed-in tariffs, renewable quota obligation, and energy efficiency laws—also contribute to emission reductions, but only the EU ETS can guarantee that the actual environmental target is met. The scheme serves as the backbone policy instrument to ensure that the EU remains on a predefined path of decarbonization.When setting interim targets, emission reductions from additional measures should be factored into the cap.

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California, China, Climate Policy, EU 20/20/20 policy, EU-ETS, European Union, GHG emissions, transatlantic power series

The European Union (EU) has undoubtedly been one of the global leaders in spurring the advanced development and deployment of renewable energies worldwide. The vision set forth by the Renewable Energy Directive 2009/28/EC – a directive setting continent-wide targets for all EU-27 member states to increase their share of renewable energy in the national energy mix – continues to stand out as the primary example of a coordinated effort to lead a large-scale energy transformation. While renewable energy targets now exist in 118 countries worldwide, few regional commitments to renewable energy deployment exist, though this trend is beginning to change.

In recent years, certain EU member states have gone beyond what is required under the Directive to set even more ambitious national goals. Denmark, for instance, is now targeting 100 percent renewable energy across their entire energy supply by 2050. These efforts should be applauded and their lessons replicated around the world. However, these successes should not obscure the very serious gap that is emerging between current policies and mechanisms and the significant challenges still facing the European renewable energy sector.

EU 2020 Energy Targets

Sector

Target

Final Energy

20% RE share by 2020

Transportation

10% biofuels by 2020

Energy Efficiency

20% improvement by 2020

A recent European Commission report has outlined the challenging road ahead for member states as they continue down the path towards their 2020 commitments. The Commission’s report sends a mixed message. On one hand, all but 2 countries – Latvia and Malta – met their first interim final energy targets defined under the Directive. In fact, 13 countries even outperformed the target by over 2 percent.

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emissions reductions, EU 20/20/20 policy, European Union, Germany, Greece, renewable energy, renewable energy finance, solar power, Spain, transatlantic power series, wind power

Germany has seen success with solar power, despite having about the equivalent solar resource of Alaska. The U.S. contains vast solar resources, but could use more federal policies to utilize this renewable resource. Trans-Atlantic collaboration could boost the transition to sustainable energy systems on both sides of the Pond. (Source: German-American Chambers of Commerce)

The U.S. and Germany are obligated, as two of the largest economies and historic emitters of greenhouse gas emissions in the world, to lead the global transition to cleaner power systems. Their success or failure in transforming energy systems has immense global signaling effects. Closer cooperation in this innovative sector could revamp a faltering historic partnership.

Germany’s chosen path to a clean energy future is ambitious and unprecedented amongst industrialized countries. The government passed a series of measures in 2011 to simultaneously move away from fossil fuels and phase out nuclear power. Renewable energy is to become the backbone of the country’s energy system – at least 60 percent of the nation’s primary energy consumption and 80 percent of electricity are to come from renewables in 2050. Meanwhile, the last nuclear reactor is to be shut down in 2022. (See the table below for an overview of German energy policy goals).

The country is already a leader in renewable energies. Few countries have a greater installed per capita capacity of renewables, excluding hydropower, than does Germany. Moreover, the government also envisions energy efficiency to be a key component in enabling the clean energy transition. Germany aims to reduce primary energy consumption by 50 percent by 2050 and increase energy productivity, or the GDP produced per unit of energy, by 2.1 percent per year.

The U.S. trails German ambition and lacks a federal clean energy strategy, but is nonetheless one of the most important and dynamic renewable energy markets in the world. As of the end of 2011, the U.S. led the world in installed biomass and geothermal power capacity, ranked second in total installed renewable power as well as wind power capacity, third in hydropower, and fifth in solar photovoltaic (PV) capacity. While total emissions in the U.S. have historically been higher than most other countries, no other country has seen a larger drop in energy-related greenhouse gas emissions over the past five years. Shifts from coal to natural gas in the power sector, as well as fuel efficiency improvements in the transportation sector, are the main reason for this reduction, but growing investments in renewable energies also contributed to this positive trend.

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energy, Europe, Germany, renewable energy, transatlantic power series, transatlantic relations, United States