Everybody now seems to acknowledge that the EU-ETS (emission trading scheme) is a failure. Even the DG Environment’s people say so, « because the carbon price is too low ».

However, the DG Environment has always resisted attempts to introduce some price control in the system, such as price caps and price floors. Why is that? Because market mechanisms work, and what matterred was « the integrity » of the « environmental target », i.e. the short term target on greenhouse gas emissions of the covered sectors.

But if the hort-term target was all what matterred, why complain abouth the too low price? To the opposite, it should be taken as a proof of the excellence of the system. And the EU-ETS should be recognised as a perfect success. After all, the target will be achieved. What else matters?

Pretending otherwise means that the true value of the policy was not in achieving the short term target, but in setting a price capable of driving long term investment, and research and development efforts. Of course, this was its real value. Climate change is a long term and global issue, very partial and short term targets have little value per se, if any. Everybody understands this. But why, then, refuse some control over the price, in the name of the integrity of the target? This makes no sense, has no logic.

Neither does it make sense to fingerpoint the feed-in tariffs for renewables, or to try to stop efforts for energy efficiency improvements, to salvage the carbon price. Certainly nobody is doing just that…

From time to time, people come to me now and say « you were right, but only about price floors », as it seems obvious that price floors is what’s missing to avoid too low carbon prices. I usually respond by saying that no, price floors are only second. Price caps is what’s missing the most, even if this seems paradoxical. The reason is that, what should make prices high is the ambition of the targets in the first place, not subsidy-like price floors. And the only way to get ambitious targets accepted by all governments is to make sure, not that they will be achieved at all costs, but to the opposite that if they turn out to be much too costly, price caps will step in to limit these costs.

But what should be done now? I’m not sure any short-term fix would fly,politically, and for the same reason – it’s always detrimental to change the rules in the middle of the game – I’m not suggesting to give any institution the responsibility to manipulate the targets and keep the prices in and acceptable and useful range. Better define this range from the onset, make it public, and build an automatic mechanism to adjust the target accordingly. But now? Apart from at last introducing price caps and floors, and define sufficiently ambitious targets for the next phase, with obvious consquences for the current price levels, I have no solution to offer… Well, maybe this one would work.

I wish the lessons of the, say, mixed success of the current phase of the EU-ETS are finally taken into account.