Last year, the EU Commission ordered a review of the Emissions Trading System (ETS). The goal was to investigate whether the system had loopholes for market speculation or manipulation. The European Securities and Markets Authority (ESMA) has now presented its report. The good news: There are no “material weaknesses” in the ETS in its current form. Lukas Scheid analyzed why adjustments are nevertheless necessary.
Nico Beckert has been researching the question of whether the domestic wind energy industry is facing the same fate as the solar industry, namely, an almost complete migration of technology and manufacturing to China. There are certainly parallels. The Chinese competition is pushing onto the global market – seven of the ten largest manufacturers are based in China, so the country has a good basis for exports. But there is one major difference with the solar industry, as you can read in the Feature.
Russia’s demand to pay its gas bill in rubles in the future is met with resistance from the G7 countries. They will abide by the treaties, which stipulate payment in euros or dollars, as stated during a special conference yesterday. Read more about this in the News.
A right to repair – that sounds environmentally and consumer-friendly since it would extend the life cycle of appliances and objects and thus conserve resources. But Patrick Stockebrandt and Svenja Schwind from the Centre for European Policy explain why the European Commission’s proposal is not all that convincing.
In October 2021, the European Securities and Markets Authority (ESMA) had started its review. The 143-page report said that based on available data, it found “no material weaknesses in the functioning” of the ETS. Price fluctuations were driven by supply and demand dynamics, as well as planned reductions in allowances and rising energy prices. The war in Ukraine also had an impact on the ETS. The price had crashed with the start of the Russian war of aggression but has since recovered. According to ESMA, the situation remains volatile.
The Market Surveillance Authority is therefore proposing some adjustments. However, this does not involve direct intervention in the system, but rather the long-term improvement of the data situation for monitoring the ETS. For example, the reporting requirements on positions in the ETS are to be adjusted, transactions carried out are to be tracked more closely, and position management for derivatives on emission allowances is to be monitored more closely. In addition, the market supervisory authority recommends making it possible to identify individual market participants to ensure greater transparency.
In its report, ESMA says it has faced “significant hurdles” in identifying the origin of market participants. As a result, it is difficult to get a clear picture of who is trading CO2 allowances and from where. The ESMA analysts found that long positions were held mainly by non-financial firms for hedging purposes, while short positions were held by banks and investment firms.
Investment fund participation has also increased – largely from non-EU countries – as has the share of high-frequency trading and algorithmic trading in the ETS – largely from companies in the UK and the US. According to the authority, this is not yet a cause for concern. It nevertheless recommends additional measures “to improve the visibility of these activities in surveillance data”.
“All these findings do not call for radical reform, but for concrete measures, and I call on the Commission to act and propose these measures without delay,” said Peter Liese (EPP). The EU Parliament’s rapporteur for the revision of the ETS had already suggested in February that the ETS should be made more transparent to prevent market manipulation (Europe.Table reported). Shadow rapporteur Michael Bloss (Greens) calls for a transparency register for all market participants, as so far, it is not public who buys what and when. “This protective screen for machinations must be abolished,” Bloss said.
Furthermore, ESMA has analyzed possibilities for direct market intervention without making a clear recommendation. Centralized market surveillance of the ETS by the EU, or ESMA, would be one such intervention, as there is no comparable EU-wide surveillance of financial instruments to date. According to ESMA, a centralized ETS market surveillance would offer the possibility to bundle all available data in one place. However, it would be costly and time-consuming and would require additional resources. Moreover, while it would be able to detect market manipulation and abusive practices more easily, it would not be able to prevent severe price fluctuations or market volatility.
Another way to prevent market abuse would be to set position limits for derivatives in the ETS. This would impose limits on the amount of positions market participants can buy or sell and reduce the risk of manipulation. However, ESMA also warns that such an instrument would increase the complexity of the system. This could reduce the liquidity of the ETS and increase volatility and resilience.
For both options of market intervention, ESMA calls for more detailed analyses and points out that a unique market like the one for emission allowances requires tailor-made solutions. Moreover, a single instrument such as the position limit cannot solve all the problems of the ETS.
The European Union wants to expand renewable energies faster as a result of the Russian war in Ukraine. And wind energy plays a major role. By 2030, 480 gigawatts of wind capacity are to be connected to the grid. Before the Ukraine shock, only 450 gigawatts were projected. The 2030 target has thus been increased by an additional 30 gigawatts. So these are golden times for the European wind energy industry – one might think. But the competition from China is pushing stronger on the global market and could profit from Europe’s wind power expansion. The European industry is therefore already warning of a loss of market share. However, a repeated disaster like the complete elimination of the German solar industry by overwhelming competitors from the Far East is not to be expected.
China’s wind industry has grown rapidly in recent years. Half of the wind turbine components manufactured worldwide are produced in China. Seven of the ten largest manufacturers come from the People’s Republic. Since 2019, Europe’s annual imports of wind turbines from China have almost doubled from €211 million to €411 million last year. European competitors are faltering at the same time. Four of five European manufacturers reported losses last year. As a result, they are closing factories and cutting jobs. In Germany alone, more than 50,000 jobs have been lost in the wind industry over the past six years, according to industry data.
All signs point to the same fate for the European wind industry as for the solar industry. But this conclusion is premature. With Vestas and Siemens Gamesa, two of the world’s five largest wind companies are from Europe. And despite rising imports, China’s position has yet to gain a strong foothold in Europe. The majority of China’s huge production capacity is used for the People’s Republic’s own massive expansion of wind energy. But it is precisely this massive expansion that is scaring Europe’s wind industry. A strong foundation at home also allows for international expansion. Chinese suppliers compete with unbeatable prices and have also caught up technologically.
Its large domestic market favors Chinese suppliers. “The sheer scale of its manufacturing capacity affords China a major competitive advantage” in the wind energy market, says Xiaoyang Li of research and consulting firm Wood Mackenzie. Industry representatives in Germany are also viewing the developments with concern. “In the largely closed-off but high-volume Chinese market, Chinese manufacturers have come close to European performance levels from a technological perspective,” says Wolfram Axthelm, Managing Director of the German WindEnergy Association. “We have seen in the past how Chinese companies penetrate new markets with government assistance.”
The situation in Europe is quite the opposite, according to the industry association Windeurope. “The small size of the market is really hurting the supply chain,” says an open letter from the association to EU Commission President Ursula von der Leyen. “The problem is not government ambition on climate action and renewables,” writes Christoph Zipf of Windeurope. “Europe is simply not permitting anything like the volumes that you and the national governments want to build.” As a result, the energy transition is being delayed.
Because demand in Europe is not sufficient, the sector is at a disadvantage against China. On the global market, the European industry is already losing market share to China. And Chinese suppliers are increasingly securing contracts to build wind farms in Europe – for example, in Italy, France, Croatia, and Serbia, the association writes.
A decision made by China’s Ministry of Finance could further widen the imbalances. The ministry recently allocated $63-billion to pay out promised subsidies more quickly. Most of the money will go to wind and solar power plant developers, Bloomberg reports. Subsidy debts had piled up in recent years as renewable energy expanded faster than the government could hand out the subsidy money. The payment arrears had affected the entire supply chain, according to an industry insider. The release of the funds would now give the industry a boost.
While Chinese companies are strengthening their competitiveness, European companies are losing market share in the People’s Republic. In 2021, construction projects by foreign wind turbine manufacturers have halved. Foreign companies’ costs for onshore turbines in China are nearly twice as high as those of domestic suppliers. Prices for Chinese wind turbines fell 24 percent in 2021, according to Wood Mackenzie. In 2022, they will drop by another 20 percent, the research and consulting firm predicts. In addition, there are regulations that “largely close off” the market to foreign companies, Axthelm says.
Will wind turbine manufacturing relocate from Europe to China? That is unlikely. After all, the wind industry is very different from the solar industry. Solar module manufacturers manufacture a mass product that can easily be transported halfway around the globe. The wind industry is much more complex. Turbines include up to 8,000 components, writes Ilaria Mazzocco. “Wind turbine manufacturers are usually also directly involved in maintenance and installation,” says the China energy expert from the Center for Strategic & International Studies. Turbine manufacturers often maintain a local presence.
This is why some Chinese suppliers are also planning to set up production facilities in Europe. European manufacturers are taking this new competition seriously, according to an industry representative. Mazzocco believes it is unlikely that Chinese suppliers will completely push out other leading companies and existing supply chains. Regulations on local value creation also suggest otherwise.
Bloomberg NEF estimates that these regulations will become more important in the future and that “qualitative criteria” will play a greater role in awarding contracts. Price could therefore lose significance as a decisive factor. This is also supported by new EU guidelines for government aid for climate, environmental protection, and energy. They allow governments to place greater focus on other criteria, such as local value creation when awarding contracts.
Both the EU Parliament and the Council welcome the idea of such a “right to repair”. However, it was unclear how this was to be designed in concrete terms for a long time. The EU Commission’s plans are now based, on the one hand, on consumers’ options and, on the other, on the products themselves to increase their resource efficiency. As convincing as a right to repair may sound at first, it is clear that the switch from a “consumption economy” to a “repair economy” is associated with a great many unanswered questions and uncertain effects.
The Commission’s main concern is to encourage consumers to use products for longer. Six options for changing warranty law are currently being discussed. These range from voluntary obligations to far-reaching changes to warranty law. Even a first look at the options shows that a European right to repair does not necessarily mean more consumer rights here. Three out of six options would lead to existing consumer rights being curtailed.
Irrespective of the details that are still open, interference with the right of warranty in pursuit of the goal of longer product service life also does not seem appropriate. This is because a right to repair that restricts consumers’ freedom of choice in the event of a defect is likely to cause acceptance problems. The legitimate goal of extending the service life of products will then have to be enforced, at least in part, against consumer interests, which would unnecessarily bring consumer and environmental protection into conflict. Intervening in warranty law with the goal of restricting consumers’ existing rights of choice is not expedient and, therefore, not appropriate.
The goal, on the other hand, can also be achieved by better informing the consumer about the reparability of a product, e.g., through a European repair index. A label (score between 0 and 10) indicates how well the product can be repaired. The idea, which has already been implemented in France, could in principle also be transferred to the EU level. Corresponding preliminary work has been carried out, but this is not taken up in the options presented.
The consumer policy formulation of a right to repair can be supplemented in environmental policy terms by general ecodesign requirements for products. These include, for example, requirements for the selection and use of raw materials or the installation and maintenance of products. In the long term, this should contribute to a circular economy that conserves resources and keeps materials in the economic cycle for as long as possible.
The answer to the question of whether improved reparability is desirable from an environmental policy perspective varies depending on the product. Better reparability can reduce resource consumption in the long term and break the patterns of the “linear throw-away society” through longer life cycles. However, better repairability may also require higher material consumption because components are screwed together rather than glued or soldered. So demand for new products must actually decrease, otherwise the goal of using fewer resources is thwarted.
In addition, the ecological benefit of using an appliance for longer is highly dependent on the product group in question. For example, it may be ecologically more advantageous to replace old products – such as power-intense freezers – with new, energy-efficient ones instead of repairing them.
A right to repair can lead to more environmental protection. But it is not a foregone conclusion. Nor can all potential consequences for companies be foreseen in specifications on reparability and thus have corresponding unintended negative effects.
The realization of a circular economy should be supported by further incentives, including market-based ones. Pricing primary raw materials can also reduce resource consumption. This makes it more attractive for companies to design their products in a more circular way – for example, through repair-friendly design or through more recyclable product design.
Last year, the EU Commission ordered a review of the Emissions Trading System (ETS). The goal was to investigate whether the system had loopholes for market speculation or manipulation. The European Securities and Markets Authority (ESMA) has now presented its report. The good news: There are no “material weaknesses” in the ETS in its current form. Lukas Scheid analyzed why adjustments are nevertheless necessary.
Nico Beckert has been researching the question of whether the domestic wind energy industry is facing the same fate as the solar industry, namely, an almost complete migration of technology and manufacturing to China. There are certainly parallels. The Chinese competition is pushing onto the global market – seven of the ten largest manufacturers are based in China, so the country has a good basis for exports. But there is one major difference with the solar industry, as you can read in the Feature.
Russia’s demand to pay its gas bill in rubles in the future is met with resistance from the G7 countries. They will abide by the treaties, which stipulate payment in euros or dollars, as stated during a special conference yesterday. Read more about this in the News.
A right to repair – that sounds environmentally and consumer-friendly since it would extend the life cycle of appliances and objects and thus conserve resources. But Patrick Stockebrandt and Svenja Schwind from the Centre for European Policy explain why the European Commission’s proposal is not all that convincing.
In October 2021, the European Securities and Markets Authority (ESMA) had started its review. The 143-page report said that based on available data, it found “no material weaknesses in the functioning” of the ETS. Price fluctuations were driven by supply and demand dynamics, as well as planned reductions in allowances and rising energy prices. The war in Ukraine also had an impact on the ETS. The price had crashed with the start of the Russian war of aggression but has since recovered. According to ESMA, the situation remains volatile.
The Market Surveillance Authority is therefore proposing some adjustments. However, this does not involve direct intervention in the system, but rather the long-term improvement of the data situation for monitoring the ETS. For example, the reporting requirements on positions in the ETS are to be adjusted, transactions carried out are to be tracked more closely, and position management for derivatives on emission allowances is to be monitored more closely. In addition, the market supervisory authority recommends making it possible to identify individual market participants to ensure greater transparency.
In its report, ESMA says it has faced “significant hurdles” in identifying the origin of market participants. As a result, it is difficult to get a clear picture of who is trading CO2 allowances and from where. The ESMA analysts found that long positions were held mainly by non-financial firms for hedging purposes, while short positions were held by banks and investment firms.
Investment fund participation has also increased – largely from non-EU countries – as has the share of high-frequency trading and algorithmic trading in the ETS – largely from companies in the UK and the US. According to the authority, this is not yet a cause for concern. It nevertheless recommends additional measures “to improve the visibility of these activities in surveillance data”.
“All these findings do not call for radical reform, but for concrete measures, and I call on the Commission to act and propose these measures without delay,” said Peter Liese (EPP). The EU Parliament’s rapporteur for the revision of the ETS had already suggested in February that the ETS should be made more transparent to prevent market manipulation (Europe.Table reported). Shadow rapporteur Michael Bloss (Greens) calls for a transparency register for all market participants, as so far, it is not public who buys what and when. “This protective screen for machinations must be abolished,” Bloss said.
Furthermore, ESMA has analyzed possibilities for direct market intervention without making a clear recommendation. Centralized market surveillance of the ETS by the EU, or ESMA, would be one such intervention, as there is no comparable EU-wide surveillance of financial instruments to date. According to ESMA, a centralized ETS market surveillance would offer the possibility to bundle all available data in one place. However, it would be costly and time-consuming and would require additional resources. Moreover, while it would be able to detect market manipulation and abusive practices more easily, it would not be able to prevent severe price fluctuations or market volatility.
Another way to prevent market abuse would be to set position limits for derivatives in the ETS. This would impose limits on the amount of positions market participants can buy or sell and reduce the risk of manipulation. However, ESMA also warns that such an instrument would increase the complexity of the system. This could reduce the liquidity of the ETS and increase volatility and resilience.
For both options of market intervention, ESMA calls for more detailed analyses and points out that a unique market like the one for emission allowances requires tailor-made solutions. Moreover, a single instrument such as the position limit cannot solve all the problems of the ETS.
The European Union wants to expand renewable energies faster as a result of the Russian war in Ukraine. And wind energy plays a major role. By 2030, 480 gigawatts of wind capacity are to be connected to the grid. Before the Ukraine shock, only 450 gigawatts were projected. The 2030 target has thus been increased by an additional 30 gigawatts. So these are golden times for the European wind energy industry – one might think. But the competition from China is pushing stronger on the global market and could profit from Europe’s wind power expansion. The European industry is therefore already warning of a loss of market share. However, a repeated disaster like the complete elimination of the German solar industry by overwhelming competitors from the Far East is not to be expected.
China’s wind industry has grown rapidly in recent years. Half of the wind turbine components manufactured worldwide are produced in China. Seven of the ten largest manufacturers come from the People’s Republic. Since 2019, Europe’s annual imports of wind turbines from China have almost doubled from €211 million to €411 million last year. European competitors are faltering at the same time. Four of five European manufacturers reported losses last year. As a result, they are closing factories and cutting jobs. In Germany alone, more than 50,000 jobs have been lost in the wind industry over the past six years, according to industry data.
All signs point to the same fate for the European wind industry as for the solar industry. But this conclusion is premature. With Vestas and Siemens Gamesa, two of the world’s five largest wind companies are from Europe. And despite rising imports, China’s position has yet to gain a strong foothold in Europe. The majority of China’s huge production capacity is used for the People’s Republic’s own massive expansion of wind energy. But it is precisely this massive expansion that is scaring Europe’s wind industry. A strong foundation at home also allows for international expansion. Chinese suppliers compete with unbeatable prices and have also caught up technologically.
Its large domestic market favors Chinese suppliers. “The sheer scale of its manufacturing capacity affords China a major competitive advantage” in the wind energy market, says Xiaoyang Li of research and consulting firm Wood Mackenzie. Industry representatives in Germany are also viewing the developments with concern. “In the largely closed-off but high-volume Chinese market, Chinese manufacturers have come close to European performance levels from a technological perspective,” says Wolfram Axthelm, Managing Director of the German WindEnergy Association. “We have seen in the past how Chinese companies penetrate new markets with government assistance.”
The situation in Europe is quite the opposite, according to the industry association Windeurope. “The small size of the market is really hurting the supply chain,” says an open letter from the association to EU Commission President Ursula von der Leyen. “The problem is not government ambition on climate action and renewables,” writes Christoph Zipf of Windeurope. “Europe is simply not permitting anything like the volumes that you and the national governments want to build.” As a result, the energy transition is being delayed.
Because demand in Europe is not sufficient, the sector is at a disadvantage against China. On the global market, the European industry is already losing market share to China. And Chinese suppliers are increasingly securing contracts to build wind farms in Europe – for example, in Italy, France, Croatia, and Serbia, the association writes.
A decision made by China’s Ministry of Finance could further widen the imbalances. The ministry recently allocated $63-billion to pay out promised subsidies more quickly. Most of the money will go to wind and solar power plant developers, Bloomberg reports. Subsidy debts had piled up in recent years as renewable energy expanded faster than the government could hand out the subsidy money. The payment arrears had affected the entire supply chain, according to an industry insider. The release of the funds would now give the industry a boost.
While Chinese companies are strengthening their competitiveness, European companies are losing market share in the People’s Republic. In 2021, construction projects by foreign wind turbine manufacturers have halved. Foreign companies’ costs for onshore turbines in China are nearly twice as high as those of domestic suppliers. Prices for Chinese wind turbines fell 24 percent in 2021, according to Wood Mackenzie. In 2022, they will drop by another 20 percent, the research and consulting firm predicts. In addition, there are regulations that “largely close off” the market to foreign companies, Axthelm says.
Will wind turbine manufacturing relocate from Europe to China? That is unlikely. After all, the wind industry is very different from the solar industry. Solar module manufacturers manufacture a mass product that can easily be transported halfway around the globe. The wind industry is much more complex. Turbines include up to 8,000 components, writes Ilaria Mazzocco. “Wind turbine manufacturers are usually also directly involved in maintenance and installation,” says the China energy expert from the Center for Strategic & International Studies. Turbine manufacturers often maintain a local presence.
This is why some Chinese suppliers are also planning to set up production facilities in Europe. European manufacturers are taking this new competition seriously, according to an industry representative. Mazzocco believes it is unlikely that Chinese suppliers will completely push out other leading companies and existing supply chains. Regulations on local value creation also suggest otherwise.
Bloomberg NEF estimates that these regulations will become more important in the future and that “qualitative criteria” will play a greater role in awarding contracts. Price could therefore lose significance as a decisive factor. This is also supported by new EU guidelines for government aid for climate, environmental protection, and energy. They allow governments to place greater focus on other criteria, such as local value creation when awarding contracts.
Both the EU Parliament and the Council welcome the idea of such a “right to repair”. However, it was unclear how this was to be designed in concrete terms for a long time. The EU Commission’s plans are now based, on the one hand, on consumers’ options and, on the other, on the products themselves to increase their resource efficiency. As convincing as a right to repair may sound at first, it is clear that the switch from a “consumption economy” to a “repair economy” is associated with a great many unanswered questions and uncertain effects.
The Commission’s main concern is to encourage consumers to use products for longer. Six options for changing warranty law are currently being discussed. These range from voluntary obligations to far-reaching changes to warranty law. Even a first look at the options shows that a European right to repair does not necessarily mean more consumer rights here. Three out of six options would lead to existing consumer rights being curtailed.
Irrespective of the details that are still open, interference with the right of warranty in pursuit of the goal of longer product service life also does not seem appropriate. This is because a right to repair that restricts consumers’ freedom of choice in the event of a defect is likely to cause acceptance problems. The legitimate goal of extending the service life of products will then have to be enforced, at least in part, against consumer interests, which would unnecessarily bring consumer and environmental protection into conflict. Intervening in warranty law with the goal of restricting consumers’ existing rights of choice is not expedient and, therefore, not appropriate.
The goal, on the other hand, can also be achieved by better informing the consumer about the reparability of a product, e.g., through a European repair index. A label (score between 0 and 10) indicates how well the product can be repaired. The idea, which has already been implemented in France, could in principle also be transferred to the EU level. Corresponding preliminary work has been carried out, but this is not taken up in the options presented.
The consumer policy formulation of a right to repair can be supplemented in environmental policy terms by general ecodesign requirements for products. These include, for example, requirements for the selection and use of raw materials or the installation and maintenance of products. In the long term, this should contribute to a circular economy that conserves resources and keeps materials in the economic cycle for as long as possible.
The answer to the question of whether improved reparability is desirable from an environmental policy perspective varies depending on the product. Better reparability can reduce resource consumption in the long term and break the patterns of the “linear throw-away society” through longer life cycles. However, better repairability may also require higher material consumption because components are screwed together rather than glued or soldered. So demand for new products must actually decrease, otherwise the goal of using fewer resources is thwarted.
In addition, the ecological benefit of using an appliance for longer is highly dependent on the product group in question. For example, it may be ecologically more advantageous to replace old products – such as power-intense freezers – with new, energy-efficient ones instead of repairing them.
A right to repair can lead to more environmental protection. But it is not a foregone conclusion. Nor can all potential consequences for companies be foreseen in specifications on reparability and thus have corresponding unintended negative effects.
The realization of a circular economy should be supported by further incentives, including market-based ones. Pricing primary raw materials can also reduce resource consumption. This makes it more attractive for companies to design their products in a more circular way – for example, through repair-friendly design or through more recyclable product design.
