The threat of wasted capital – why ETS reform needs to come into effect in 2017

This paper argues that the reform of the ETS needs to come into effect in 2017 rather than 2021 in order to avoid a lost decade for climate protection and in order to encourage innovation.

The allowances due to re-enter the market in 2019 and 2020 from backloading should be placed in the market stability reserve instead of flooding the market.

The paper argues that the market stability reserve will not increase volatility to a larger extent than a central bank approach. It further argues that due to past experience, investors will – unless the ETS reform is brought forward – only start making investment decisions based on the ETS in the mid- to late-2020s.

By Martin Schoenberg, head of policy, Climte Change Capital.