Three Nordic utilities propose a mechanism to ensure policy coherence with the EU ETS

Policies that overlap with the EU ETS are a significant contributor to its current ineffectiveness. To date, 1/3 of the surplus of allowances in the ETS has originated from intersecting policies, according to the findings in a new report. The oversupply may continue to grow in the future as a result of incoherent targets and new policies in the 2030 framework.

On the initiative of the three utilities, Pöyry Management Consulting has developed a mechanism to deal with this overlap in a structured and predictable manner. The Policy Coherence Mechanism aims at adjusting the ETS for future policy overlaps rather than seeking to retroactively correcting for the surplus of allowances resulting from such policies. The report is launched today in the European Parliament.

This Policy Coherence Mechanism ensures that the overlapping policy has a real environmental benefit - as the amount of allowances is reduced and not just redistributed in the system. The mechanism has no impact on the free allocation of allowances to the industry to protect it against carbon leakage.

Fortum, Statkraft and Vattenfall believe it is crucial to embed a mechanism in the EU Governance Regulation to mitigate the unintended effects of other European and national policies on the demand of allowances and resulting surplus in the carbon market. The proposed mechanism is key to deliver a more effective ETS and to facilitate the cost efficient transformation of the energy sector towards innovative and low-carbon technologies.

A robust Policy Coherence Mechanism should be broad in scope and promptly neutralise the unintended impacts which other policies have on the EU ETS:

The full report (PDF 2 MB)

Common statement from Vattenfall, Statkraft and Fortum (PDF 373 kB)

For further information

Fortum: Kari Kankaanpää, Senior Manager Climate Affairs, kari.t.kankaanpaa@fortum.com +358 504 53 23 30
Statkraft: Anne C. Bolle, Head of Climate Policies, anne.bolle@statkraft.com +47 91 35 32 70
Vattenfall: Erik Filipsson, Issue Manager Decarbonisation Policies, erik.filipsson@vattenfall.com +46 761 19 22 85

Fortum, Statkraft and Vattenfall represent 258 TWh/a of electricity generation and 49 TWh/a of heat. We have for long advocated a strong emissions trading system (ETS) as the cornerstone of the EU climate and energy policy. We are convinced that the ETS is the most efficient driver for market based investments in low-carbon electricity generation. Thus, we fully support the ongoing revision of the ETS for the 4th trading period (2021–2030) to improve the system, while stressing that it can be even further strengthened by our concrete proposals.