Bloomberg News

EU Carbon Permits Climb on Plans to Delay Auction Supplies

April 19, 2012

European Union emissions permits rose to the highest in a month after Climate Commissioner Connie Hedegaard said the bloc may propose a delay in supply at carbon auctions starting next year.

Permits for delivery in December erased earlier losses to close up 1.8 percent at a one-month high of 7.45 euros ($9.77) a metric ton on the ICE Futures Europe exchange in London.

“In the 2013-2020 period, there’s today a tendency that you’ll have much more allowances coming to the market in the early phase than in the later phase,” Hedegaard told reporters today in Horsens, Denmark, after a meeting of EU environment ministers. “We think it’s time to look into whether that makes sense.”

The 27-nation bloc is considering options to tackle an oversupply of carbon allowances, which drove prices in the world’s biggest greenhouse-gas market to a record low earlier this month. The EU is moving toward auctioning allowances in the next phase of the emissions trading system, or ETS, after giving most of them to companies for free since 2005.

The European Commission, the EU regulatory arm, is planning to bring forward an annual report on the ETS that the bloc’s law requires to be presented in 2013, according to Hedegaard. It will be a “golden opportunity” to look into the auctioning regulation, Hedegaard told reporters.

Annual Report

The commission plans to present a review of the auctioning regulation after publication of the annual report and seeks to complete work on it by year-end, Hedegaard said. It will be subject to the so-called comitology procedure, in which a measure needs qualified-majority support from representatives of national governments to pass. The process typically takes about five months.

Europe may struggle to put in place any carbon market intervention at all if it can’t achieve a temporary delay in volumes sold in auctions, Trevor Sikorski, an analyst for Barclays Plc in London, said today by phone. A slowing of supply would “lay the foundation for a future cap change,” he said.

Auctioning Profile

“It goes without saying that when you change the auctioning profile then you’re not flooding the market with as many allowances early next year as is the case if you’re not changing that,” Hedegaard said. “What we have been looking into at the commission is whether there’s anything we can do more or less right away.”

The emissions caps that the ETS imposes on more than 12,000 facilities were set before the debt crisis and economic slump. The system will be oversupplied by permits and offset credits covering about 1.1 billion tons of CO2 by 2012, according to Bloomberg New Energy Finance. This surplus may be transferred into the next trading phase.

EU nations were “almost unanimous” at the meeting today that the commission should propose measures to address the “problem” in the short-term, the U.K. said in an e-mailed statement.

“This sends the strong signal the U.K. was looking for that the commission should bring forward proposals to strengthen the EU ETS in the short-term,” the country said.

Poland, which get about 90 percent of its electricity from coal, upheld its objection to any measures that are aimed at boosting the price of EU carbon allowances, saying they would amount to “market manipulation.”

“My first reaction is that I’m skeptical,” Environment Minister Marcin Korolec said in an interview after the meeting. “We’d need to see the details of such a proposal.”

Hedegaard said the commission’s plan is the first step in a process to strengthen the ETS and the EU will continue to explore “longer-term structural issues,” including a set-aside of carbon allowances, or withholding a number of permits from the market.

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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