Economic crisis has left ETS 'thoroughly obsolete'

Like an employee rolling over unused holiday allowances to the next year, companies are going to be able to roll over these unused pollution permits to the next phase of the ETS, and use them when business turns around, meaning that only a very tiny amount of reductions will happen until as late as 2016, according to a report by Sandbag, a UK-based research group specialising in emissions-trading analysis.

The group's analysis has found that the ETS over the 2008-2012 period will result in a savings of just 32 million tonnes of emissions out of the 1.9 billion tonnes emitted annually.

The ETS permits all unused permits to be carried over to the 2013-2020 phase of the scheme.

As a result, although the policy covers a full 12,000 different installations across Europe, regulating the emissions of a single power station would have produced a greater impact, according to the report's authors.

And this is the optimistic scenario, as it assumes a quick European economic recovery - to 2008 levels by 2011.  A slower recovery would mean that the ETS would provide no constraint on emissions at all.

"The recession has rendered the ETS caps thoroughly obsolete," said Sandbag campaigner Damien Morris.

"Unless they are adjusted to reflect our new circumstances, the EU ETS risks becoming an albatross around the neck of European climate policy."

The European Commission for its part conceded that the group had the numbers right.

"We agree in broad terms with the analysis underlying the report that supply is larger than demand for allowances in phase two of the ETS," EU climate action spokeswoman Maria Kokkonen said in response to the report.

But Brussels maintains that reforms to the ETS will solve the problem.

"However, we do not share all the policy conclusions drawn from it," she continued. "The ETS has undergone a fundamental reform as part of the [2008] climate and energy package and is on course to be even more effective in the future."

Despite the continued failure of the ETS, Sandbag nevertheless still supports emissions trading in principle.

The group says that the problem can be solved if emissions caps in the ETS are readjusted down to reflect the economic collapse, based on actual emissions rather than pre-crisis predictions. Industry however is lobbying heavily to ensure that this does not happen, the group warns.

However, the raft of reports o the ETS's problems and carbon trading more generally as a concept is wearing down enthusiasm for the scheme, with some green groups beginning to have second thoughts. Friends of the Earth, a major player in Brussels green politics, recently switched its position from critical support of the ETS to opposition.

"We are generally seeing a failure of the ETS to make any impact on emissions in Europe. It just isn't working," David Heller, the group's European climate campaigner told EUobserver.

"We have to begin looking elsewhere for policy options, notably direct regulation, shifting subsidies to sustainable activities and carbon taxes," he continued.

"There has been so much political and financial capital invested in the project that people are afraid to consider other policies, but we just do not have the time if you look at the timescale. The ETS will not allow the EU to meet its international climate obligations in time."