Bloomberg News

EU Considered 30 Euro Floor for CO2 Starting in 2013, Lobby Says

October 11, 2011

Oct. 12 (Bloomberg) -- The European Commission considered installing a floor price in its carbon market for the third phase from 2013 to 2020 to spur clean investment, said the Carbon Markets & Investors Association.

“The unofficial discussion in the European Union was that, during phase three, the commission was hoping to have an operating floor price unofficially of about 30 euros ($41) a metric ton,” Miles Austin, director of the lobby group, said yesterday at a hearing of the energy and climate change committee in U.K. Parliament in London.

Carbon has dropped 26 percent this year, falling as low as 9.82 euros a metric ton on Oct. 4, the cheapest for more than two years. Austin didn’t say why the EU didn’t implement the price floor. EU lawmakers should consider tightening the region’s carbon cap to a 30 percent cut on 1990 levels by 2020 instead of the current 20 percent target because the economic recession has made it cheap to do so, he said.

The U.K. committee is exploring ways of co-operating with other nations to achieve a “fair deal” on climate protection and whether the EU, which runs the world’s biggest greenhouse gas market by traded volume, can sustain a credible carbon price without a global climate agreement, according to the parliament’s website.

‘Needs to Consider’

“The EU needs to consider what it really wants to do with the EU emissions trading system: if they want something that works and to be a world leader or if they want something that’s essentially oversupplied and won’t deliver,” Imtiaz Ahmad, an executive director at Morgan Stanley representing the International Emissions Trading Association, told the hearing.

EU carbon fell 0.8 percent to 10.64 euros at 4:25 p.m on the ICE Futures Europe exchange in London.

Boosting EU prices by linking with other carbon markets is unlikely anytime soon, said Austin. “In the U.S. they were getting profoundly nervous about anything going over $20 a ton,” meaning there would be little incentive for a program there to link with the EU market, he said.

Any plan by EU regulators to “set aside” some supply of allowances to boost prices should be undertaken by an independent body and any return of that supply to the market should be made under clearly set circumstances that would be predictable for traders, Austin said.

The declining price in the EU does not necessarily mean the market is failing, said Trevor Sikorski, an analyst in London for the investment banking arm of Barclays Plc. The low prices also reflect strong supply of United Nations Certified Emission Reduction credits, which were deliberately installed into the program to cut its cost, he said. “It’s providing cost containment. It’s doing what it said it was going to do.”

--Editors: Rob Verdonck, Raj Rajendran

To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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