REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL The state of the European carbon market in 2012
Date: 2012-11-14
Institutions: European Commission
Subjects: auction sale, climate change, greenhouse gas, reduction of gas emissions, supply and demand, tradeable emission permit

EUROPEAN 
COMMISSION 

Brussels, 14.11.2012  
COM(2012) 652 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

The state of the European carbon market in 2012 

(Text with EEA relevance) 

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TABLE OF CONTENTS 

1. 

2. 

3. 

4. 

4.1. 

4.2. 

4.3. 

4.4. 

4.5. 

4.6. 

5. 

Introduction .................................................................................................................. 3 

The state of the carbon market ..................................................................................... 4 

A review of the auction timetable as the short term measure ...................................... 6 

Options for structural measures ................................................................................... 6 

Option a: Increasing the EU reduction target to 30% in 2020 ..................................... 7 

Option b: Retiring a number of allowances in phase 3 ................................................ 7 

Option c: Early revision of the annual linear reduction factor..................................... 8 

Option d: Extension of the scope of the EU ETS to other sectors ............................... 8 

Option e: Use access to international credits ............................................................... 9 

Option f: Discretionary price management mechanisms ............................................. 9 

Conclusions ................................................................................................................ 11 

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REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

The state of the European carbon market in 2012 

(Text with EEA relevance) 

1. 

INTRODUCTION 

This report on the functioning of the carbon market is presented in accordance with Articles 
10(5) and 29 of the EU Emissions Trading System Directive1. The report was envisaged by 
the ETS Directive in 2013, the first year of phase 3. At their informal meeting in April 2012, 
Environment ministers were informed about Commission's intention to bring forward the first 
report and prepare it already in 2012, which they welcomed. 

The EU Emissions Trading System (EU ETS) has produced since its start an EU-wide carbon 
price  signal  that  influences  daily  operational  and  strategic  investment  decisions.  From  2013 
onwards it will cover around half of the greenhouse gas (GHG) emissions in the EU. 

As  stipulated  in  Article  1  of  the  ETS  Directive  the  system  has  been  established  in  order  to 
promote reductions of greenhouse gas emissions in a cost-effective and economically efficient 
manner. This aim is not limited in time. The ETS will be critical in driving investments in a 
wide range of low carbon technologies. It is designed to be technology neutral, cost-effective 
and fully compatible with the internal energy market. The ETS will need to play an increased 
role in the transition to a low-carbon economy by 2050. Since the start of the second trading 
period in 2008, emissions are down by more than 10 % but while the carbon price signal of 
the EU ETS has certainly contributed to this, the economic crisis is clearly the major cause of 
these strong emission reductions. 

This  said,  the  EU  ETS  is  widely  recognised  as  a  liquid  market  with  a  functioning 
infrastructure and inspires an increasing number of countries to follow the European lead and 
put in place domestic carbon markets, such as Australia, South Korea and China. 

The  purpose  of  this  first  report  is  to  analyse  the  functioning  of  the  carbon  market  and  to 
consider  whether  regulatory  action  is  needed,  as  foreseen  under  Article  29  of  the  EU  ETS 
Directive. It also responds to the call of the European Parliament and the Council made in the 
context of the Energy Efficiency Directive, on the Commission 

-  "to  examine  in  this  report  options,  including  among  others  permanent  withholding  of  the 
necessary  amount  of  allowances,  for  action  with  a  view  to  adopting  as  soon  as  possible 
further  appropriate  structural  measures  to  strengthen  the  ETS  during  phase  3,  and  make  it 
more effective." 

1 

Directive 2003/87/EC 

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2. 

THE STATE OF THE CARBON MARKET 

The  implementation  of  the  EU  ETS  has  been  accompanied  by  a  wealth  of  market  and 
operational  experience  for  governments  and  companies.  This  experience  fed  into  the  major 
revision of the system’s operational design, agreed in 2008 for application as of 2013, where 
the following fundamental changes will apply: 

1. 

2. 

3. 

4. 

5. 

an  EU-wide  cap  on  allowances,  as  opposed  to  27  individual  Member  State  caps, 
decreasing  by  1.74%  annually,  up  to  and  beyond  2020,  providing  much  greater 
regulatory predictability and stability 

auctioning as the default system of allocation in phase 3  

harmonised rules for free allocation,  based on performance benchmarks  established 
prior to phase 3 

stricter  rules  on  the  type  of  international  credits  that  are  allowed  for  use  in  the  EU 
ETS 

replacement of 27 national electronic registries by a single Union registry 

These  changes  imply  from  a  regulatory  perspective  a  fundamental  transformation  of  the 
European  carbon  market.  Despite  the  fact  that  some  work  (e.g.  establishment  of  auctioning 
infrastructure) still remains to be fully completed, the regulatory infrastructure is today largely 
in place. 

With the start of the second trading period it was expected that the ETS phase 2 cap would be 
ambitious.  But  the  crisis  unfolding  as  of  2008  has radically altered the picture and the  ETS 
has since experienced a surplus of allowances and international credits compared to emissions 
(see table below). The number of allowances that were put in circulation has been increasing 
every year, as well as the supply and use of international credits, most notably in 2011. By the 
end  of  2011,  8171  million  allowances  had  been  put  into  circulation  and  549  million 
international  credits  had  been  used  for  compliance,  in  total  adding  up  to  8720  million  units 
that were available for compliance over the period 2008-2011. In contrast, verified emissions 
in the period 2008-2011 were only 7765 million tonnes CO2-eq.  

Consequently,  by  early  2012,  a  surplus  of  955  million  allowances2  had  accumulated.  Even 
excluding the part of the surplus arising from the use of international credits for compliance, 
the surplus would still have been 406 million allowances. 

Table 1: The supply-demand balance 2008-2011 

(in Mt) 

2008 

2009 

2010 

2011 

Total 

Supply: 
international credits  

Issued 

allowances 

and 

used 

2076 

2105 

2204 

2336 

8720 

Demand: Reported emissions 

2100 

1860 

1919 

1886 

7765 

2 

An international credit that is used for compliance frees up one allowance that does not need to be used 
for  compliance.  As  such  the  use  of  international  credits  for  compliance  increases  the  surplus  of 
allowances available to the market. 

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Cumulative surplus of allowances 

-24 

244 

285 

450 

955 

Source: Community Independent Transaction Log (CITL), compliance data 2011 as published on 2 May 2012, 
European Commission 

The  pattern  of  an  increasing  supply  of  allowances  and  international  credits,  combined  with 
low  demand  is  partially  reflected  in  the  observed  price  evolution  since  2008.  The  price  of 
allowances is the result of a wide range of factors but without doubt the economic recession in 
2009 had a major impact on prices. The marked reduction of prices in the second half of 2011 
to levels below € 10 coincides  with  the accelerated build-up of a surplus in allowances and 
international credits. 

Figure 1: Carbon price evolution 

Source: Intercontinental Exchange. Data for front-year futures contracts with delivery in December 

A continued rapid build-up of the surplus in 2012 and 2013 is to be expected, largely due to 
temporary elements directly related to the transition to phase 3. Supply of allowances on the 
short term is increasing, notably through the forward selling of phase 3 allowances to generate 
funds for the NER300 programme for carbon capture and storage and innovative renewables,3 
early auctioning to meet power sector hedging demand, and the selling of left-over allowances 
in national phase 2 new entrant reserves. The combined effect of these three sources amounts 
to some 500 million allowances by end 2013. At the same time supply of international credits 
is  likely  to  remain  high  and  its  use  in  the  EU  ETS  probably  increasing  in  the  transition  to 
phase 3. Emissions in 2012 and 2013 are not expected to change significantly, therefore the 
surplus at the start of phase 3 could be well over 1.5 billion allowances, and even as large as 2 
billion allowances.4 

While from 2014 onwards the rapid build-up of the surplus is expected to come to an end, the 
overall surplus is not expected to decline significantly during phase 3, resulting potentially in 

3 
4 

http://www.eib.org/about/news/ner-300.htm 
Additional information can be found in the Staff Working Document on 'Information provided on the 
functioning of the EU Emissions Trading System, the volumes of greenhouse gas emission allowances 
auctioned  and  freely  allocated  and  the  impact  on  the  surplus  of  allowances  in  the  period  up  to  2020' 
(SWD(2012) 234 final) 

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a structural surplus in most of phase 3 of around 2 billion allowances. The magnitude of the 
surplus  by  2020  will  largely  depend  on  longer  term  energy  developments,  such  as  the 
penetration of renewable energy and on-going efforts to increase energy efficiency, as well as 
on the speed of economic recovery. 

Figure 2: Historic and likely future profile up to 2020 of supply and demand  

Source: SWD(2012) 234 final 

3. 

A REVIEW OF THE AUCTION TIMETABLE AS THE SHORT TERM MEASURE 

Normally weakened demand is accompanied by decreasing supply. However in the EU ETS, 
the  supply  actually  increases  temporarily  in  the  next  years  due  to  specific  regulatory 
provisions, as outlined in section 2. 

Some  surplus  is  a  normal  feature  of  a  carbon  market,  which  allows  there  to  be  differences 
between the cap and emissions. But with the surplus already at almost a billion allowances in 
2011,  there  is  a  real  risk  of  seriously  undermining  the  orderly  functioning  of  the  carbon 
market by causing excessive price fluctuation due to the additional short-term over-supply of 
allowances.  

With  the  exceptional  situation  at  present  of  continued  increases  in  supply  due  to  regulatory 
provisions, it is appropriate to review the timetable which determines the supply within phase 
3  of  the  EU  ETS  and  delay  some  of  the  auctioning.  Therefore,  to  improve  the  orderly 
functioning  of  the  carbon  market,  the  Commission  proposes  as  an  immediate  measure  to 
change the timing of the auctioning in phase 3 and postpone auctions of a certain amount of 
allowances planned for 2013, 2014 and 2015. 

This  report  is  therefore  complemented  by  a  draft  amendment  of  the  Auctioning  Regulation, 
accompanied by a proportionate impact assessment. It demonstrates that such "back-loading", 
if well designed, can rebalance supply and demand in the EU ETS market into the transition 
into phase 3 and reduce volatility caused by the rapid build-up of surplus allowances. It can 

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do  so  without  any  significant  impacts  on  competitiveness  and  it  can  strengthen  government 
revenues early in phase 3.  

But "backloading" would not affect the structural surplus of around 2 billion allowances over 
the  2013-2020  period.  As  allowances  allocated  during  the  crisis  can  be  used  long  after  the 
crisis is over, the effects of the surplus will be making themselves felt up to 2020 and beyond. 
A structural measure could correct this over-supply, thereby limiting its longer-term effects. 

4. 

OPTIONS FOR STRUCTURAL MEASURES 

In  order  to  tackle  the  growing  structural  supply-demand  imbalance,  and  to  seek  views  of 
stakeholders, six  non-exhaustive options for structural measures have been identified by the 
Commission.Should the Commission decide to pursue any of these options, all would require 
a legislative proposal by the Commission to the co-legislators, accompanied by a full impact 
assessment in line with smart regulation principles. 

4.1. 

Option a: Increasing the EU reduction target to 30% in 2020  

In  the  case  that  the  EU  were  to  increase  its  GHG  reduction  target  to  30%  in  2020,  if  the 
conditions are right, as repeatedly confirmed by the European Council, then there would need 
to  be  a  consequential  amendment  to  the  quantity  of  allowances  in  the  EU  ETS  either  via  a 
permanent retirement of allowances or a revision of the annual linear reduction factor, the two 
mechanisms also described in more detail as options b and c. A more ambitious cap for phase 
3 would also have implications on the carbon market beyond 2020.  

The Commission has already analysed previously the implications of a volume of a retirement 
of  allowances5  that  would  align  the  EU  ETS  cap  up  to  2020  with  an  overall  target  of  30% 
compared to 1990 and the EU's agreed long-term objective of 80-95% by 2050 compared to 
1990. Such a volume would be equal to around 1.4 billion allowances. The Commission has 
also analysed the associated implications at Member State level6.  

This option would not only require changes to the quantity of allowances in the EU ETS but 
also affect the targets adopted under the Effort Sharing Decision7. 

4.2. 

Option b: Retiring a number of allowances in phase 3  

The surplus can be reduced by retiring some phase 3 allowances on a permanent basis. This 
measure requires primary legislation and could be implemented by a separate decision, to be 
taken by the European Parliament and Council, rather than a fully-fledged revision of the EU 
ETS  Directive.  As  such  it  would  fully  maintain  regulatory  stability  of  the  wider  legislative 
ETS framework for phase 3.  

5 

6 

7 

Staff Working Document accompanying the Communication 'Analysis of options to move beyond 20% 
greenhouse gas emission reductions and assessing the risk of carbon leakage' SEC(2010) 650 
Staff Working Document accompanying the Communication ' Analysis of options beyond 20% GHG 
emission reductions: Member State results' SWD(2012) 5 final' 
The targets for sectors not covered by the EU ETS are determined by Decision No 406/2009/EC on the 
effort of Member States to reduce their greenhouse gas emissions to meet the Community’s greenhouse 
gas emission reduction commitments up to 2020. 

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The results sought of this option are to reduce the number of allowances issued in phase 3 by 
permanently retiring a number of allowances from the amount foreseen to be auctioned. This 
option would by design leave the amount of free allocation or existing holdings of allowances 
untouched. 

The measure can be effective in addressing the overall supply-demand imbalance over phase 
3.  It  would  implicitly  increase  the  numerical  reduction  target  for  2020  and  thus  (partially) 
restore the ambition level of the 2008 climate-energy package, but it would not directly affect 
the framework after 2020. It would reduce the surplus of allowances in phase 3 and depending 
on  the  amount  retired  ensure  that  the  ETS  contributes  to  renewables  and  energy  efficiency 
objectives. Various approaches for the amounts and time profile of the permanent retirement 
can obviously be considered.  

4.3. 

Option c: Early revision of the annual linear reduction factor 

The total amount of allowances decreases by the linear factor of 1.74% annually, compared to 
the average annual total quantity for the period 2008-2012. This linear factor applies also after 
2020 pending any change of the ETS Directive. The Directive foresees a review of the linear 
factor  as  from  2020  with  a  view  to  the  adoption  of  the  decision  to  change  it  by  2025.  This 
review  could  be  advanced,  as  such  potentially  lowering  the  total  amount  of  allowances 
available already in phase 3 depending on how soon it would take effect. 

This  structural  measure  could  not  only  address  the  imbalance  and  (partially)  restore  the 
ambition level up to 2020, but would also impact the ambition level after 2020. As such the 
linear factor could be set at levels in-line with an overall EU target of 30% GHG reductions 
compared to 19908, as described under option a. The current linear factor leads to a just over 
70%  reduction  in  the  ETS  cap  by  2050,  which  is  not  consistent  with  the  EU's  agreed  long 
term  objective  of  80-95%  reduction  by  2050  compared  to  1990,  as  the  Commission  has 
pointed out in the 2050 Low-carbon Roadmap9.  

An  early  revision  of  the  linear  factor  thus  also  impacts  the  period  beyond  phase  3.  For  this 
period a number of other important policy questions impact the market fundamentally, such as 
how to increase the EU's competitiveness on key low carbon technologies, the link with the 
EU's  post-2020  policy  framework,  the  link  with  the  development  of  an  international  carbon 
market  and  the  risk  of  carbon  leakage.  Changing  the  linear  factor  would  also  require 
addressing these. 

4.4. 

Option d: Extension of the scope of the EU ETS to other sectors 

The fourth structural option could be to include sectors less strongly influenced by economic 
cycles.  Whereas  the  emissions  in  the  EU  ETS  decreased  in  2009  by  more  than  11%,  in  the 
sectors  outside  the  EU  ETS  this  reduction  was  only  around  4%.  This  difference  may  be 
partially explained by differing impacts of the economic crisis on individual sectors. 

8 

9 

This does not automatically change the ambition level of the sectors not covered by the EU ETS, whose 
target  is  determined  by  Decision  No  406/2009/EC  on  the  effort  of  Member  States  to  reduce  their 
greenhouse gas emissions to meet the Community’s greenhouse gas emission reduction commitments 
up to 2020 
COM(2011) 112 final, Communication 'A Roadmap for moving to a competitive low carbon economy 
in 2050'. 

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The  coverage  of  the  EU  ETS  could  therefore  be  expanded  to  other  energy  related  CO2 
emissions in sectors currently outside the EU ETS by for instance including fuel consumption 
in other sectors. This could be a next step in the further development of the European carbon 
market. It would be consistent with potential energy system changes such as the increased use 
of  electricity,  gas  and  biomass  in  all  energy  related  sectors  in  the  transition  towards  a  low 
carbon economy by 2050.  

A more comprehensive extension to all energy related emissions would substantially increase 
the emissions coverage and can impact the overall ambition level, depending on the level of 
the  cap  foreseen  for  the  sectors  included.  Several  policy  questions  would  need  to  be 
addressed,  such  as  who  would  carry  the  obligation  to  report  emissions  and  surrender 
allowances, fuel producers or users, or some kind of a hybrid system. Therefore, this measure 
requires more analytical work, including on how it would relate to existing policies in these 
sectors.  

4.5. 

Option e: Limit access to international credits  

International  credits  have  been  allowed  for  use  in  the  EU  ETS  primarily  to  contain 
compliance costs. Following the exceptional macro-economic developments and the fact that 
emissions  have  been  substantially  lower  than  the  cap,  the  quantity  limit  of  international 
credits in the period 2008 to 2020 has turned out to be rather generous and is a major driver 
for  the  build-up  of  the  surplus.  Without  international  credits,  the  surplus  in  the  EU  ETS  by 
2020 would potentially be only around a quarter (25%) of the presently expected surplus.  

In phase 4 the regulatory framework could be crafted in a manner that initially allows for no 
or much more limited access to international credits. This would create more certainty about 
the  effort  to  be  undertaken  in  Europe  and  thus  could  spur  indigenous  investment  in  low 
carbon  technologies,  instead  of  external  monetary  and  technology  transfers  through  the  EU 
ETS. This may, however, have to be balanced against adverse impacts on financial flows and 
transfer of technology to developing countries. 

Short term demand shocks in the EU ETS could be contained through the remaining surplus 
in  the  EU  ETS,  and  do  not  require  per  definition  a  large  amount  of  international  credits. 
Additional flexibility regarding the access to international credits could be foreseen in case of 
strong  and  sustained  price  increases.  Such  a  mechanism  could  have  a  similar  function  as 
Article  29a  of  the  Directive,  but  would  not  result  in  the  rapid  growth  of  the  surplus  as 
experienced at present. 

Furthermore,  the  right  international  conditions  could  enable  a  strengthening  of  the  cap  and 
therefore  allow  for  additional  cost  containment  through  increased  access  to  international 
credits.  Care  should  be  taken  that  this  does  not  lead  again  to  too  limited  mitigation  for  too 
much money, as was the case for instance with international credits from certain industrial gas 
projects.  

4.6. 

Option f: Discretionary price management mechanisms 

To achieve the EU goals of promoting emission reductions in a cost-effective manner as well 
delivering gradual and predictable reductions of emissions over time, the EU ETS is designed 
as a quantity-based instrument, where a predefined quantity of emission allowances is issued 
determining  the  environmental  outcome.  It  is  the  scarcity  of  allowances,  together  with  the 
flexibility provided by the ability to trade, that sets the carbon price in the market in the short, 
medium  and  long  term.  To  reduce  volatility  and  prevent  price  drops  due  to  temporary 

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mismatch between supply and demand, two mechanisms could be conceived as a temporary 
way of supporting the carbon price.  

As  from  the  third  trading  period  a  large  amount  of  allowances  will  be  auctioned,  a  carbon 
price  floor  has  been  discussed  as  a  feature  applied  primarily  in  the  primary  market,  i.e.  for 
auctions10. A carbon price floor would create more certainty about the minimum price, giving 
a better signal for investors.  

Alternatively, a mechanism could be devised that adjusts the supply of allowances, when the 
carbon price would be affected by a large temporary supply-demand imbalance, by means of a 
price  management  reserve.  If  decreases  in  the  demand  were  to  generate  an  excessive  price 
decrease  below  a  certain  level  deemed  to  affect  the  orderly  functioning  of  the  market,  an 
amount of allowances to be auctioned could be deposited in such a reserve. In the opposite 
case, allowances could be gradually released from the reserve. The reserve could initially be 
funded by reducing phase 3 auction volume by an amount corresponding to a substantial share 
of  the  accumulated  surplus.  The  rulebook  could  foresee  the  permanent  retirement  of  some 
allowances, in case the size of the reserve would exceed a certain magnitude. 

Discretionary  price-based  mechanisms,  such  as  a  carbon  price  floor  and  a  reserve,  with  an 
explicit  carbon  price  objective,  would  alter  the  very  nature  of  the  current  EU  ETS  being  a 
quantity-based market instrument. They require governance arrangements, including a process 
to  decide  on  the  level  of  the  price  floor  or  the  levels  that  would  activate  the  reserve.  This 
carries a downside in that the carbon price may become primarily a product of administrative 
and  political  decisions  (or  expectations  about  them),  rather  than  a  result  of  the  interplay  of 
market supply and demand.  

Such discretionary price management would also raise a number of design issues, central to 
the effectiveness of the instrument, starting with the appropriate price levels. For instance: 

• 

• 

• 

10 

If  it  would  not  lead  to  cancellation  of  allowances  which  were  withdrawn  from  the 
auctioning  process  because  prices  were  too  low,  then  it  would  not  achieve  any 
additional environmental benefit which is determined by the cap. 

If the floor price or minimum price for the reserve were set too high, it would in fact 
just  fix  the  carbon  price,  reduce  the  flexibility  and  result  in  higher  costs.  If  set  too 
low to be triggered, they would not be effective in their aim to address the problems 
identified and create more certainty about the price. 

A carbon price floor or minimum price for the reserve would provide more certainty 
for  investors  and  suppliers  of  low-carbon  technologies  at  the  risk  of  potentially 
imposing excessive cost on ETS participants and society for emissions abatement in 
case of technological breakthroughs, which substantially lower abatement costs.  

This  concept  is  distinct  from  a  reserve  price  for  auctions  that  is  already  foreseen  in  the  Auctioning 
Regulation. An auction reserve price is the secret minimum clearing price of an auction, set on the basis 
of  the  going  market  price  for  emission  allowances  before  the  auction.  An  auction  clearing  price 
significantly  below  this  reserve  price  most  likely  indicates  a  deficiency  of  the  auction.  Given  the 
objective of a clear price signal for the carbon market, the Auctioning Regulation requires the auction to 
be cancelled in case of such a low clearing price. 

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Such  discretionary  mechanisms  may  also  raise  questions  on  the  further  development  of  an 
international  carbon  market,  as  it  would  make  linking  with  other  emission  trading  systems 
more difficult.  

5. 

CONCLUSIONS 

The EU ETS has created a functioning market infrastructure and a liquid market producing an 
EU  wide  carbon  price  signal.  This  has  contributed  to  delivering  real  GHG  emissions 
reductions in line with the EU targets for 2020. However, the effects of the crisis compounded 
by a number of regulatory provisions related to the transition to Phase 3 have caused serious 
imbalances to emerge between supply and demand in the short term with potentially negative 
long-term repercussions. If not addressed, these imbalances will profoundly affect the ability 
of  the  EU  ETS  to  meet  the  ETS  target  in  future  phases  in  a  cost-effective  manner,  when 
significantly  more  demanding  domestic  emission  objectives  than  today  would  have  to  be 
reached. As the central pillar of European climate policy, the ETS has been designed to be a 
technology  neutral,  cost-effective  and  harmonised  component  of  the  internal  market  and, 
notably, the internal energy market.  

The Commission therefore proposes action on two fronts:  

Firstly, in order to address the rapid increase of supply in the transition to phase 3 it proposes 
to  change  the  auctioning  timetable  and  invites  the  Climate  Change  Committee  to  give  an 
opinion  on  the  draft  amendment  to  the  Auctioning Regulation  before  the  end  of  the  year  in 
order  to  provide  certainty  for  market  participants.  To  eliminate  any  legal  uncertainty, 
Parliament and Council are invited to urgently adopt the proposed "mini-amendment" of the 
EU ETS Directive that would clarify expressly the relevant provision11 and would then allow 
the Commission to swiftly adopt an amendment to the Auctioning Regulation.  

Secondly,  structural  measures  should  be  discussed  and  explored  with  stakeholders  without 
delay.  These  discussions  can  benefit  from  insights  of  the  2050  Low  Carbon  Economy  and 
Energy  Roadmaps.  Changing  the  auctioning  profile  is  only  a  short-term  and  temporary 
measure that would allow for a more stable phase 3 and more gradual build-up of the surplus. 
It  would  not  be  a  solution  that  addresses  the  structural  surplus.  To  do  so  would  require 
deploying  a  structural  measure  affecting  more  profoundly  and  permanently  the  balance 
between  supply  of  and  demand  for  allowances.  The  table  below  summarises  some  key 
features of the options listed in the report. 

Table 2: Features of the various options 

Option  

a. Increasing the EU 
GHG target to 30% 

Effects 
supply or 
demand 
Supply 

b. Retiring a number of 
allowances 

Supply 

Speed of 
deployment 

Depending 
on the 
mechanism* 
Relatively 
fast 

Changes 
ambition 
post-2020 
Depending 
on the 
mechanism* 
No 

Impacts free 
allocation 

Depending 
on the 
mechanism* 
No 

11 

Proposal for a Decision amending Directive 2003/87/EC clarifying provisions on the timing of auctions 
of greenhouse gas allowances, COM(2012)416 

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c. Early revision of the 
linear reduction factor 
d. Extension of the scope  Demand 

Supply 

Slow 

Slow 

Yes 

No 

Yes 

Depending 
on design 
No 

Slow 

Supply 

e. Access rules to 
international credits 
f. Discretionary price 
management 
* This depends on and corresponds to features of the mechanism that would operationalise the increase, i.e. 
retiring allowances or a revision of the linear reduction factor. 
**Assuming that the mechanisms would not result in the cancellation of those allowances that are 
temporarily not auctioned. 

Supply 

No** 

Slow 

No 

No 

While each option affects supply or demand, some options will require more time to analyse, 
decide  upon  and  subsequently  implement.  Options  also  have  different  impacts  on  market 
certainty  in  the  short  term  and  the  interaction  with  other  policies  such  as  renewables  and 
energy efficiency will need to be further analysed.  

The Commission welcomes stakeholders' views on structural options and will as the next step 
shortly launch a formal stakeholder consultation process. 

EN 

12 

   EN