Blog Post

Backloading – An ineffective economic measure for a good political reason?

Wednesday afternoon will see the fourth vote in the European Parliament (this time again in the environment committee) on a scheme to temporarily reduce the number of allowances available to participants in the EU emissions trading system in order to stabilise dwindling allowance prices. 

By: Date: June 19, 2013 Topic: Energy & Climate

Wednesday afternoon will see the fourth vote in the European Parliament (this time again in the environment committee) on a scheme to temporarily reduce the number of allowances available to participants in the EU emissions trading system in order to stabilise dwindling allowance prices. This is referred to as “backloading”, because the 900 million allowances that would be withheld from the market in 2013-2015 would be reintroduced in 2019-2020.

Much has been written on the advantages and disadvantages of this proposal. For David Hone at Shell there are a number of reasons to vote in favour of back-loading. First, restoring the price signal will increase market confidence, necessary to improve investment decisions (eg, in carbon sequestration projects). In more political terms, the backloading decision could boost the idea of a single EU market and could promote EU leadership on carbon trading. In fact, since 2005, many countries have followed Europe’s example and introduced an ETS system at home.

On the academic side, Neuhoff and Schopp (2013) are strongly in favour of backloading as a means to tighten the demand-supply balance in the carbon market. They argue that while a modest oversupply in the system is fine as long as enough emitting companies have to buy allowances for their foreseeable needs (hedging), the price collapses when the oversupply in the system reaches a certain level. Hence, a weak form of scarcity is essential to obtain meaningful prices.

The carbon trading campaign group Sandbag underlines that, from the UK perspective, it would be counterproductive to vote against backloading as the price disparity between the UK “Carbon Price Floor” and the EU ETS would otherwise increase to the detriment of UK electricity generators.

At the same time numerous commentators (such as member of the European Parliament Korhola) have warned that an intervention in the market mechanism could be seen as a signal of high political volatility, scaring away investors. We have argued in an earlier blogpost (Decarbonisation is no 100 metre race) and a recent paper (You’d better bet on the ETS) that the ETS is a very efficient decarbonisation policy, but that backloading does not resolve the structural issue of the ETS – the lack of long-term credibility of the system.

But beyond arguments about whether backloading is the best tool to stabilise the ETS or not, the discussion has shifted towards whether the ETS itself is an appropriate tool for cost-effective decarbonisation, and even if we can afford decarbonisation in the current economic climate. Consequently, for many commentators, backloading is not about the demand-supply situation in the ETS but s mainly a political issue (Carbon Clear, Stop Climate Change). The argument is that a negative vote on backloading will demonstrate a general distrust in the ETS. Hence, the backloading decision has been turned into a symbolic choice on the future of European decarbonisation policies (Felix Matthes).

This makes it difficult for policymakers that agree that the ETS is the appropriate tool for decarbonisation, but fear that backloading is inappropriate for improving the system.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

View comments
Read about event More on this topic

Past Event

Past Event

Cleaning up Europe's transport sector: which strategies?

Over the last decade, EU’s greenhouse gas emissions have decreased significantly in all sectors with the only exception of transport. This sector is thus becoming a key obstacle to EU decarbonisation and more aggressive policies are needed to decarbonise it. This event discussed the potential strategies to structurally address this issue, also on the basis of Bruegel’s new policy proposal in the field.

Speakers: Maria Demertzis, Francesco Starace and Simone Tagliapietra Topic: Energy & Climate Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 3, 2018
Read article More on this topic More by this author

Opinion

A new strategy to clean up European cars, and the air we breathe

Transport is the only sector in which Europe's CO2 emissions are now higher than in 1990 and is becoming a key obstacle to the EU meeting its decarbonisation targets, as laid out in the Paris Agreement. The author recommends a three-pronged strategy for a clean-up of the sector: ban diesel and petrol vehicles, reform transport taxation and focus on early-phase technologies.

By: Simone Tagliapietra Topic: Energy & Climate Date: May 2, 2018
Read article More on this topic More by this author

Podcast

Podcast

How to reform European transport and tackle rising emissions

The transport sector is the Europe's biggest obstacle to meeting its climate-change targets. But there are several ways in which the EU can take the initiative and lead both its citizens and its automotive industry in a cleaner direction. Bruegel fellows Simone Tagliapietra and Georg Zachmann discuss their research and policy conclusions in this episode of 'The Sound of Economics'

By: The Sound of Economics Topic: Energy & Climate Date: April 24, 2018
Read article Download PDF More on this topic

Book/Special report

Developing the EU long term climate strategy

To ensure that EU climate policy is in line with the goals of the Paris Agreement, and takes into account substantial recent shifts in the technical and political framework, the EU needs a new long-term climate strategy that will supersede the 2050 Roadmap that was issued in 2011.

By: Georg Zachmann and Andrei Marcu Topic: Energy & Climate Date: April 18, 2018
Read about event

Upcoming Event

Sep
3-4
09:00

Bruegel Annual Meetings 2018

The Annual Meetings are Bruegel’s flagship event. They offer a mixture of large public debates, lectures and invitation-only sessions about key issues in European and global economics. In a series of high-level discussions, Bruegel’s scholars, members and stakeholders will address the economic policy challenges facing Europe. The sessions on the first day will be livestreamed […]

Speakers: Richard E. Baldwin, Maria Demertzis, Mariya Gabriel, Bruno Le Maire, Philippe Lespinard, Dominique Moïsi, Jean Pierre Mustier, Emma Navarro, Ana Palacio, Lucrezia Reichlin, André Sapir, Jean-Claude Trichet, Margrethe Vestager, Reinhilde Veugelers, Georg Zachmann and Guntram B. Wolff Topic: Energy & Climate, European Macroeconomics & Governance, Finance & Financial Regulation, Global Economics & Governance, Innovation & Competition Policy Location: Brussels Comic Strip Museum, Rue des Sables 20, 1000 Brussels
Read article Download PDF More on this topic

Policy Brief

Addressing Europe’s failure to clean up the transport sector

The European Union has the long-term vision to reduce its greenhouse gas emissions by 80-95 percent by 2050 compared to 1990 and it adopted in 2014 a binding 40 percent emissions reduction target to be achieved by 2030. Transport is therefore set to become the main obstacle to the achievement of the EU’s decarbonisation goals.

By: Simone Tagliapietra and Georg Zachmann Topic: Energy & Climate Date: April 9, 2018
Read article Download PDF More by this author

Policy Brief

Beyond coal: facilitating the transition in Europe

Europe has a dirty energy secret: coal is producing a quarter of the electricity, but three-quarters of the emissions. The EU should propose that its member countries speedily phase out coal and put in place a scheme to guarantee the social welfare of coal miners who stand to lose their jobs, making a better use of the European Globalisation Adjustment Fund (EGF)

By: Simone Tagliapietra Topic: Energy & Climate, European Macroeconomics & Governance Date: November 23, 2017
Read about event More on this topic

Past Event

Past Event

EU-Turkey energy and climate dialogues

This event is part of the joint Bruegel-IPC initiative European Neighbourhood Energy and Climate Dialogues. This is a closed door event, open only to Bruegel's members and a group of experts.

Speakers: Dirk Buschle, Ahmet Evin, Myriam Ferran, Philipp Godron, Daniel Grütjen, Sohbet Karbuz, Susanne Nies, Mehmet Oguctu, Megan Richards, John Roberts, Umit Sahin, Simone Tagliapietra and Georg Zachmann Topic: Energy & Climate Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: October 20, 2017
Read article More on this topic

Blog Post

Reinforcing the EU energy industry transformation: stronger policies needed

The European energy system is being transformed by three major forces, decarbonisation, digitalisation and decentralisation. Decarbonisation is changing the European energy mix, while innovation in digital technologies is enabling disruptive change in the way energy systems are operated.

By: Simone Tagliapietra and Georg Zachmann Topic: Energy & Climate Date: September 21, 2017
Read about event

Past Event

Past Event

Bruegel Annual Meetings 2017

The Annual Meetings are Bruegel’s flagship event. They offer a mixture of large public debates and small private sessions about key issues in European and global economics. In a series of high-level discussions, Bruegel’s scholars, members and stakeholders will address the economic policy challenges facing Europe.

Speakers: Carlos Sallé Alonso, José Antonio Álvarez Álvarez, Agnès Bénassy-Quéré, Pervenche Béres, Matthias Buck, Grégory Claeys, Zsolt Darvas, Jean Luc Demarty, Maria Demertzis, Anna Ekström, Lowri Evans, Ferdinando Giugliano, Sandro Gozi, Peter Grünenfelder, Reiner Hoffmann, Levin Holle, Kate Kalutkiewicz, Steffen Kampeter, Peter Kažimír, Emmanuel Lagarrigue, Matti Maasikas, Steven Maijoor, Reza Moghadam, Nathalie Moll, James Murray, Johan Van Overtveldt, Julia Reinaud, André Sapir, Dirk Schoenmaker, Mateusz Szczurek, Marianne Thyssen, Jean-Claude Trichet, Reinhilde Veugelers, Nicolas Véron, Ida Wolden Bache, Liviu Voinea, Guntram B. Wolff and Georg Zachmann Topic: Energy & Climate, European Macroeconomics & Governance, Finance & Financial Regulation, Global Economics & Governance, Innovation & Competition Policy Location: Square - Brussels Meeting Centre Date: September 7, 2017
Read article More on this topic

Blog Post

Low carbon technology exports: the race is still open

A country’s relative strength in exporting a certain product is likely to persist. But it is easier to gain a comparative advantage in exporting low carbon products. When it comes to R+D, strength in a certain technological field is much less linked to past specialisation. This also holds for low carbon technologies. Finally, our preliminary findings are consistent with the view that R+D can help a country specialise in clean technology exports. However, we are not yet able to show that policy action supporting R+D in clean technologies is a sensible way to develop a comparative export advantage in these sectors.

By: Georg Zachmann and Enrico Nano Topic: Innovation & Competition Policy Date: August 24, 2017
Read article Download PDF More on this topic

Book/Special report

Towards EU-MENA Shared Prosperity

Endowed with half of the world’s known oil and gas reserves, the Middle East and North Africa (MENA) region has become a cornerstone of the global energy architecture. This architecture is currently undergoing a structural transformation, prompted by two different forces: decarbonisation policies and low-carbon technology advancements. This book seeks to address the following research question: are MENA oil-exporting countries equipped to prosper in times of global decarbonisation?

By: Simone Tagliapietra, Abdelhak Bassou, Marion Jansen, Yassine Msadfa, Mario Filadoro and Larabi Jaidi Topic: Energy & Climate Date: August 17, 2017
Load more posts