Bloomberg News

EU Ministers to Discuss CO2 Market Future After Price Slump

April 03, 2012

European Union ministers will discuss the need to improve the bloc’s emissions trading system on April 19, two weeks after carbon prices fell to a record low, a planning document obtained by Bloomberg shows.

The meeting of environment ministers will be hosted by Denmark, which holds the rotating presidency of the EU, and no formal decisions will be taken. Falling prices cast “some doubt” on the ability of the emissions cap-and-trade plan, known as the EU ETS, to promote investment in low-carbon technologies, according to a note written by the Danish presidency and distributed to member states.

“There will be discussions about the price and there will be discussions about different views on how to address the situation,” Isaac Valero-Ladron, climate spokesman for the European Commission, told a briefing in Brussels today.

EU carbon allowances for December fell as much as 4.6 percent to a record 6.05 euros a metric ton on the ICE Futures Europe exchange in London today after preliminary data released yesterday showed emissions from factories and utilities in the region dropped 2.4 percent last year. That implies a third consecutive annual surplus of emissions permits.

The commission, the EU regulatory arm, stands by its idea of temporarily curbing the supply of carbon permits in the next trading period starting in 2013, a process known as a set-aside, Valero-Ladron said.

‘Substantially Lower’

The current price of greenhouse-gas pollution is “substantially lower” than expected when the ETS was reviewed in 2008 to meet the bloc’s climate-protection targets and encourage investment in low-carbon technologies, according to the presidency note.

“The ETS has two main objectives: 1) to reduce emissions and 2) to provide a price signal to inform operational and investment decisions,” the Danish presidency wrote. “While the first objective is on target to being met, the delivery of the second objective is currently in some doubt.”

The emission caps that the EU program imposes on more than 12,000 facilities were set before recessions and debt crises curbed industrial output. Member states are divided on whether the bloc should tighten its carbon-reduction targets or temporarily issue fewer permits to boost prices.

‘Robust Price Signal’

While some “advocate leaving the market to respond,” others “argue that the second main objective of the ETS, to provide a robust price signal and ensure low carbon investments” is falling short, the presidency wrote.

The EU is on schedule to meet its goal of cutting greenhouse-gas emissions by 20 percent in 2020. The European Commission, the bloc’s regulatory arm, said in a policy paper last year that Europe should cut emissions by 40 percent in 2030 and 60 percent in 2040 compared with 1990 levels.

Poland blocked an EU statement supporting the commission’s paper at a meeting of environment ministers last month, saying it may result in talks about revising the existing target.

The country also opposes the creation of a set-aside of carbon permits by delaying some auctions of allowances. It would undermine investor confidence in the stability of European legislation, Poland’s Environment Minister Marcin Korolec said in a letter to his counterparts on March 6.

The European Parliament’s industry committee voted in February to include an option of a set-aside in a planned law on energy efficiency. To become a part of the legislation, the provision would need backing from member states, which may decide to leave out the amendment on withholding permits in their version of the directive, according to a draft proposed by the Danish presidency.

Inter-Institutional Agreement

Even if the set-aside option is removed from the planned law, the commission has the right to come up at any time with a proposal to withhold permits. A tentative EU timetable shows that governments could sign off on the energy legislation in June and the full parliament could vote on it in July.

“We stand by this idea of setting aside a number of permits, but in terms of concrete steps that will follow the preliminary idea we need to wait a bit until the debate on the Energy Efficiency Directive is concluded and an inter- institutional agreement is reached,” Valero-Ladron said.

To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net


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