The idea is that if you cut emissions in sectors in Norway covered by EU quotas – in that country emissions are mainly from the offshore and onshore oil and gas industry – this would make way for more emissions elsewhere in Europe. So we’re wasting money on expensive national measures that have no climate impact anyway.
But that is not the case.
Expensive, but wise
As the main instrument of EU climate policy, the quota system must contribute to achieving the climate target of reducing emissions by at least 55 percent compared to the 1990 level by 2030. This means that emissions in the sectors covered by the system – energy production – , energy-intensive industry, aviation, and soon also shipping – will be 62 percent less in 2030 than in 2005.
This condition applies to the European Union as a whole, and no targets have been set for each individual country. on the contrary; Measures should be implemented wherever they cost less. It is the real and expected exchange rate that controls where this happens.
Some of the emissions reductions are immediate, and the price of a quota could help make it profitable to produce power from gas rather than coal. Others take more time. Expectations of a higher price premium in the future make investments in developing green technology and implementing large-scale industrial measures that reduce emissions profitable in the long run.
Melkøya’s emission reductions are not required as a result of Equinor’s quota commitment. But the industry that wants to stay in Europe is now turning things around to find solutions that deliver lower emissions to 2030 and beyond. Not because of today’s allowable price of about €90 per ton of CO2 – admittedly a tenfold increase in five years, but not necessarily enough to make costly climate measures in industry profitable. Until now.
The quota ceiling – the number of quotas, or emissions rights, to be issued – has fallen sharply year after year. There is less and less room for emissions. With the regulations recently adopted to reach the 55 percent target, it will be very strict towards 2030, and the last quota will be distributed in 2039. In 2040, emissions in the quota-abiding sector should be net-zero.
Climate cuts across the board
The certainty that the quota ceiling will fall to zero means that emissions must fall in all sectors and in all countries, and the rate must rise. In other words: if not now – then when? If not here – where?
In addition, the mechanism introduced in 2019 to contribute to a more balanced quota system still has an important role to play. The mechanism works through surplus market shares that are kept in reserve. As of this year, an additional element came into play: the stakes in the reserve must eventually be written off forever.
A mountain of excess quotas, equivalent to two years’ emissions from the quota-compliant sector, was canceled in May this year. This means further tightening the level of climate ambition.
A share of the quotas that have been “released” through Melkøya’s electrification will therefore be absorbed by the reserve – and will initially not be available for use by other players in the quota market, and eventually will also be removed forever. The hypothesis that quotas announced by Melkøya that it does not need could increase emissions or delay climate measures elsewhere in Europe is at best a theoretical possibility.
Good advice is expensive in climate policy. But investments in costly measures in the quota-based sector, above the current quota price level, are not necessarily bad. On the contrary, a massive shift through cutting emissions in all sectors is necessary to achieve the legal EU climate targets that Norway has joined, and it is also profitable in light of the costs of pollution when the number of climate quotas is reduced.
There can be many objections to Melkøya’s electrification – and one of them shouldn’t be that it doesn’t reduce greenhouse gas emissions.
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