Eurelectric: The EU needs a strong carbon price signal to drive low-carbon investment

Hans Ten Berg, Eurelectric secretary general, says electrification remains crucial to reducing carbon ­emissions and the EU ETS must be able to provide the right investment signals

The Paris Agreement is a major landmark in addressing the global climate change challenge. It provides clear confirmation by the international community of the irreversible transition to a low-carbon world which will steer the global clean energy transition.
We now have a truly international climate agreement, which provides the necessary signal to governments, businesses and the general public of the universal commitment to fight climate change.
The provisions in the Paris Agreement on the long-term goals and the ambition mechanism, as well as the key elements relating to the development of a rules-based transparency and accountability framework, will ensure that we achieve a robust and durable global climate regime, which will create new and innovative opportunities for low-carbon development.
Market-based mechanisms, such as carbon markets, are the most effective tools for mitigating greenhouse gas emissions and stimulating investments in low-carbon technologies and energy efficiency. The international community should immediately pursue efforts to define the modalities for its implementation with a view to the development of a global carbon market.
The European power sector believes that the most effective way forward in the smooth transition towards a low-carbon economy is through a clear, predictable carbon price signal that will allow industry to invest in an efficient and sustainable manner. In the longer term the carbon price should increase in order to reflect the external cost of greenhouse gas emissions.

“It is only the combination of an effectively reformed EU ETS and an improved EU electricity market design that can lead to proper price signals”

A strong EU Emissions Trading System (ETS) is the best way to provide affordable, reliable and sustainable electricity to the EU economy and to achieve Europe’s decarbonisation objectives in a cost-efficient manner.
To achieve this, two elements are crucial: a well-functioning electricity market and a robust EU ETS. It is only the combination of an effectively reformed EU ETS and an improved EU electricity market design that can lead to proper price signals from the relevant markets to drive investments in mature low-carbon technologies.
The EU ETS should become the main driver for market-based investments in low-carbon electricity generation. The Commission’s proposal to revise the EU ETS Directive puts the EU on course to take important steps on the path towards the cost-effective decarbonisation of the European economy. The proposal is therefore a perfect opportunity to make the EU ETS the main instrument to provide incentives to reduce greenhouse gas emissions, improve energy efficiency and to invest in low-carbon technologies.
However, the success of the reformed EU ETS will depend on ensuring full consistency and coherence between the elements and targets of the 2030 Framework, as well as developing an adequate governance framework that enables the achievement of these objectives.
As the EU considers the outcome of the Paris Conference, there is a great potential to achieve further ambition in the EU ETS up to 2030, by addressing the current surplus in the market. A strengthened EU ETS will ensure cost-effective, technology-neutral and market-based delivery of the EU’s decarbonisation objectives as it drives major investment in renewables and energy efficiency. Furthermore, as electricity becomes increasingly low-carbon, the electrification of transport and heating and cooling sectors could contribute to any increase in decarbonisation ambition in the non-ETS sectors.
To achieve the cost-optimising benefits of a coherent economy-wide approach, it is crucial that a consistent carbon price signal should apply across all sectors of the economy, thus enabling the efficient distribution of assets and efforts. The longer term decarbonisation objective for 2050 also means that greenhouse gas emissions must be reduced at the end user level in all sectors, including transport and buildings.
This is why the electrification of the demand-side sectors of the economy, which do not fall under the EU ETS, will be crucial on the path to decarbonisation. Electrification is crucial to move emissions to source, where they would be dealt with through the EU ETS.
The upcoming revision of the Effort Sharing Decision and the EU’s strategy for decarbonising the transport, heating and cooling sectors, provide an excellent opportunity to enhance the role of decarbonised electricity in achieving the EU’s decarbonisation agenda. As electricity becomes increasingly low-carbon, replacing fossil-based systems with electric technologies that utilise electricity will provide a promising pathway to decarbonise these sectors.

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