Good overview over the problems and who proposes what way out of it. As it is rather long, I tried to paste the excerpts here I found most important to the situation (but do go and read it in full if you have 10 minutes): 

"Strangely enough, the person speaking out most about the need to fix the ETS of late has been EU energy commissioner Günther Oettinger rather than EU climate commissioner Connie Hedegaard. At a dinner organised by the European Energy Forum in March, he argued that the current EU carbon price of €6 a tonne is too low to change the European energy system and that something needs to be done about it. He would support a Commission proposal to that effect by September, he announced, while warning at the same time that a carbon price of more than €20 a tonne would not be acceptable to European industry in the present economic climate."

"But when the scheme was set up, it was also presumed that the declining cap would give rise to a price signal to drive low-carbon investments. EU policymakers assumed a carbon price about six times what it is today – close to €40 a tonne rather than €6 a tonne. “€6 a tonne is not a signal for low-carbon investment,” says Jesse Scott, Head of Environment and Sustainable Development at EU electricity association Eurelectric. Giovanni Bertolino, Head of Carbon Regulation at Italian energy giant Enel agrees: “The price is far below expectations and not providing the right incentive for power companies to make the investments needed to meet future climate goals.” For Sanjeev Kumar, Senior Associate at think tank E3G in Brussels, the problem is more acute: “Policymakers have given huge subsidies [in the form of free carbon allowances] and they’re not getting anything back.”"

"The main two reasons for the oversupply [of certificates] are: the recession (as production dropped so did emissions) and overlap of the ETS with other decarbonisation policies, in particular the EU renewable energy directive."
ETS needs to be "more flexible and it also needs to incorporate expectations on future targets and policies, such as those suggested in the 2050 low-carbon roadmap.”
"'Renewables reduce the carbon price but not carbon emissions. There is still as much CO2 allowed under the cap."

"The solution with the most political life in it is undoubtedly the so-called "set-aside", or taking a number of allowances - the most oft-quoted figure is 1.4 billion - out of the carbon market. The main advantage of this option is that it could be done in a matter of months rather than years."

"Apart from the set-aside, the other main option for fixing the ETS is adjusting the so-called “linear reduction factor”, or the rate of decline of the cap. This is currently set at 1.74% a year. For many set-aside supporters increasing this to 2% or even 2.5% would be a more elegant alternative than the set-aside. It's a political hot potato though, because it’s an explicit tightening of the cap. It will have to come at some point – the 1.74% will not get the EU to the 80% emission cut in 2050 that European leaders have committed to – but it will require a full political debate that many say the ETS cannot wait for right now."

"Many stakeholders believe that the decisive players for the set-aside debate over the next few months will be Commissioner Oettinger and Germany. "

25 Apr 2012 - 8:09
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