[MUSIC] Today we welcome Dr Barbara Mariani from FleishmanHillard, one of the consultancies, major consultancies on energy and other matters here in Paris. Barbara is an expert of emission trading system of pricing of carbon. So, I'm lucky to have her and ask her whether she sees a brilliant future for the European Emissions Trading System. >> Thank you, thank you, Professor Luciani for inviting me, I'm very delighted and honored to be here. So, the emissions trading scheme, as you probably know, this is a system which was born in Europe, already I would say more than 15 years ago, and it's a cap and trade system. Basically, policymakers decided that in order to fight against climate change, there was a need to put a cap on CO2 emissions because these are one of the main causes of global warming. And the big debate was how to do it. So there were a few options, two main options. One was that of introducing a carbon tax, and the second one was introducing a market system and market mechanism based on the principal of cap and trade. Basically you put a cap on how many omissions are allowed every year and you introduce the so-called CO2 allowance, which is what we call a permit to pollute, and each allowance basically define, corresponds to one ton of CO2 emitted in the atmosphere. This system called carbon trade is meant to promote a trading In the market of CO2 allowances. So it basically states a number of allowances which will be given to the member states in order to be put into the market, the European market, and be traded, traded by whom? By those who need a permit to pollute and by those who don't have this urgent need and can buy these allowances but also trade them in the market, which are the main takers of this mechanism. First of all, the industries which pollute by emitting CO2 into the atmosphere. So, first of all, energy producers. And secondly, the manufacturing industry, which is the industry which needs a lot of energy to produce from steel to paper to chemicals, these are called energy intensive industries. The mechanism was going to be applied to these two main industry stakeholders, and it's a mechanism which has been reviewed and revised several times because it's a new market, it's a commodity, which has been created from scratch, it's a traded commodity. So, there was the issue of how many allowances to put in the market, which price to give to these allowances., how to protect industries from the cost. Because back in 2005 when the system became operational, there was an issue around competitiveness because Europe was still in the lead in the fight against climate change, the emissions trading scheme was the first one global level, and so European industries had a cost issue with regard to global competitors in other non-EU countries. So in order to protect global competitiveness, the system had to also, per view, to foresee a number of measures, which are called and are known as carbon leakage measures, because they had two main, let's say objectives, one was that of protecting competitiveness. But the other one, which is probably most important, was that of avoiding that because of these costs, European industries would delocalize their production elsewhere in jurisdictions with no legislation on climate change, so this is called carbon leakage. So, you transfer the carbon emissions from Europe to elsewhere because of the cost. So in order to avoid both the environmental consequences and the competitiveness consequences, the carbon leakage measures, which in a nutshell are a number of allowances given for free to industries, has been introduced. >> Yes, exactly. One of the problem of energy is, initial trading system is that you cannot establish a tax on the border for carbon intensive products that come from the rest of the world. Is that a solution to this? >> Well, this has been a long debated even until very recently, these measures has been called border adjustment measure, and it's a sort of tax, a CO2 tax that would be introduced at the border of Europe in order to prevent the carbon leakage but also in order to prevent that, it would be easier to import products rather than produce them in Europe because of all of this binding legislation. Now the carbon, the border taxation measures had been an object of very heated debate because the first problem that these measures would create is within the WTO- >> Yes. >> The World Trade Organization, because it is thought to be, let's say not complying with the trade policies as a sort of environmental taxation. >> Yeah, I mean, but if we need to impose a border adjustment, would it not be easier to impose a carbon tax from the very start and fix a prize from without having a system of market? >> Yes, the debate between opting for a carbon tax versus an emissions trading scheme has also been very long and is also picking up now again. The thing is that, in Europe, introducing a taxation across Europe is a difficult matter because it needs unanimity in the council, meaning that 27-member states need to be unanimous in introducing the taxation. Today, there are no such European taxes, fiscal systems are pretty much- >> National. >> National. So this would have set a precedent, which was quite worrying for policymakers. And, at that time, industry was more enthusiast about introducing market mechanism because there was, and there is still a sort of hesitation towards fiscal measures. >> Yes, nobody likes attacks, but [LAUGH]- >> Exactly, nobody likes attacks. Although from several point of view, especially in terms of administration, a carbon taxation- >> Would be easier. >> Would be easier because the emissions trading scheme needs constant regular maintenance, interventions. And there have been several drawbacks. For instance, during the economic crisis in 2008, the prices of the CO2 allowances went dramatically down and therefore was no longer the so-called price signal for industries to switch from fossil fuels towards more low carbon options in terms of energy, production, and this is still quite a matter of of concern. >> Also, yeah, there is a difficulty of coordinating different emissions trading system in different parts of the world because China is introducing one, some states in the United States have introduced one and so on so forth. But the rules are different, it's not clear how you can optimize the relations between these different systems, right? >> Yes, absolutely, because these systems are different because they are adjusted to the respective economic structures and they apply to different types of industries, the carbon price is different, the measures to protect industries are different, so these systems basically are not easily connected. >> Made the similar. >> Similar, yes. >> [LAUGH] Yes. >> There are several issues behind that and there are also political issues, so it's not easy. The most functional one is the linking between the ETS, European ETS, and the Swiss' emissions trading, but Swiss is a small country. >> Yes, but Switzerland is a whole country and doesn't count for much. >> Yeah, [LAUGH]. So- >> Do you see any possibility that the system would evolve towards a carbon tax? In the United States, there is, amongst economists, not certain enough amongst politicians, but amongst economists, there is a strong current that says the carbon tax is the right solution. >> Well, I think that we need to give ourselves a few years to understand whether the emissions trading can really take us to achieve Paris' targets of carbon neutrality by 2050. Because if the system doesn't work, meaning if the price of carbon is not a signal towards shifting to non-fossil fuel sources, then there is definitely a need to reconsider all the options. And on carbon tax, I would also like to mention that in Europe there are at least ten-member states who have introduced a carbon tax on top of the ETS, why? Because the ETS only covers energy producers and big energy intensive manufacturing industries but does not cover, for instance, transport and buildings, so the energy used in transport and the energy used in buildings, heating and cooling, etc. So, some of these carbon taxes, which have been introduced in a few member states, do cover some sectors, non-ETS sectors, but they are quite different from each other and plus the amount of the tax is very different, you can go from a few euros to Sweden, which has a very high carbon tax. So there is a discussion of whether this carbon taxation should be, whether the emissions trading should be accompanied by this carbon taxation. And this is a very difficult issue because it has been discussed during the revision of the energy taxation directive in Europe a few years ago, which as I said before, needs unanimity of all the member states. And this proposal by the commission has been rejected by the member states because they could not find an agreement on introducing a CO2 component in energy taxation. So it's a very political issue and not easy to fix [INAUDIBLE]. >> Yes, it's one demonstration of the fact that it is difficult to reach an agreement even within the European Union on matters that have huge economic importance. And so we may need time but do we have time? The scientists tell us that global warming is advancing very rapidly. >> Yes, I mean we don't have time, but I think that there is an issue of, not only in Europe but mostly outside Europe, on whether we are serious about this. If you look at what is happening in the United States with the current administration, there is a standstill, and this has an impact also on other big countries, so I think there is a need to relaunch this drive towards decarbonization as much as we, it has been done before Paris and leading to the Paris agreement. I think nowadays if you're really serious about achieving those targets, we need to work on that with the international community because Europe alone cannot really- >> No, some people conclude that neither emission trading nor a carbon tax can be the main tool, and so there are proposals to do all sorts of other things. Do you think that this might become our main tool to pursue decarbonization? >> There are already in Europe other tools. >> Yes. >> There is the renewable directive, meaning there is a renewable target for 2030, there is already one for 2050 or for 2020. There is an energy efficiency target, meaning that the European Commission has really looked into all the several options to try and stir this decarbonization. In the transport, for instance, the European Union has just introduced higher CO2 standards for cars and heavy duty vehicles. So all these measures have the same objective. But there is one question, whether all these measures outside the emissions trading would play, how these measures would play on the emissions trading scheme? >> Yes, yeah. >> Because many industrial stakeholders are concerned that with the renewable target, the energy efficiency target, the price of CO2 might go down- >> Lose importance. >> And lose importance, and the emissions trading scheme will no longer be seen as the main driver of decarbonization. So, that's why the debate is there. And, as I said, we need to give ourselves a few more years but decisions need to be taken on what is the most important. But what is clear is that there is no silver bullet. >> No. >> So many options should work together but not with counteractive, counterproductive impacts. >> Yes, we need to be careful and use all the tools available. Thank you, Barbara. >> Welcome, you're welcome.