EU Kyoto Protocol obligations flow into the economy

Flexible:

For policy makers in implementation, allocation of burden, management of cost pass-through and dealing with sectoral issues.

For facilities in managing compliance.

For the EU economy to transition to a long term carbon restriction

Lowest cost approach:

Early trigger to begin the major task of decarbonising the power sector with a particular need to guide investment into the 2020s.

Assisting developing countries in beginning the task of emissions reduction

Demonstrating the effectiveness of carbon pricing through an ETS with the goal of encouraging similar systems elsewhere.

New policy measures undermining the structure – e.g. energy efficiency directive.

EU member states starting to take their own action – e.g. UK carbon floor price.

Higher cost compliance route for the EU.

Little support for the international mechanisms.

It depends on a strong carbon price to ensure sufficient funding through the NER 300.

Macro-economic events have changed the landscape.

A potential solution is to tighten the EU ETS Phase III cap, reflecting the changed economic conditions since the original cap was set.

Best done as a set-aside of a fixed number of allowances.