Carbon revenues: possibly the greatest opportunity to cut carbon and costs

Panel: 1. Foundations of future energy policy

This is a peer-reviewed paper.

Author:
Louise Sunderland, RAP and Independent, United Kingdom

Abstract

In 2013 at least half of the total emission allowances in the EU Emissions Trading Scheme (EU ETS) will be auctioned after two periods in which free allowances were afforded to cover the vast majority of the emissions within the scheme. The auctioning of allowances brings significant new revenue to Member States, estimated to be between €10bn and €20bn per year to 2020, depending on the carbon price.

These new funds present an opportunity to support a redoubling of energy efficiency efforts. However, at a time of economic crisis when public budgets are being cut, there is huge competition for these new funds. This paper considers the potential for the ETS revenues to be spent on energy efficiency, particularly in the building stock. It looks at the potential scale of resource available, what could be achieved if used for energy efficiency and the arguments for and against recycling of carbon taxes into carbon mitigation.

As Member States begin to announce their intentions with regard to the new revenues, a small number are following the recommendations of the European Parliament and latterly the Energy Efficiency Directive that ETS revenues should be used for climate protection purposes or more specifically to further energy efficiency objectives. This paper reviews the plans published by these Member States (eg France, Germany, Czech Republic) alongside arguments from other countries for not hypothecating the revenues (eg UK). It also draws on evidence from carbon tax schemes outside of the EU that have evaluated the value of reinvestment in carbon mitigation to discuss the economic and political feasibility of the largest potential source of public funding for energy efficiency in recent years.