The European Union may submit to its member states by the middle of July a proposal to delay some sales of carbon permits starting in 2013 to tackle oversupply, according to an official with knowledge of the matter.
Representatives of EU national governments in the Climate Change Committee could discuss the draft at their July meeting, with a view to voting on the proposal in September, said the official, who declined to be identified, citing policy.
The 27-nation bloc is considering options to improve the world’s biggest cap-and-trade carbon market after a recession cut industrial output and pollution prices slumped to a record low earlier this year on oversupply. The EU is moving toward auctioning allowances in the third phase of the emissions trading system, or ETS, after giving most of them to companies for free in the first two trading periods since 2005.
“The prospect of a September vote is bullish, as it would likely allow for the proposal to pass before the start of Phase 3,” Konrad Hanschmidt, a carbon-markets analyst at Bloomberg New Energy Finance in London, said in an e-mail. “It nevertheless leaves the market with the key question of how the delay will be implemented. Prices will not go much higher until we get this critical information.”
EU permits for December pared losses and traded 0.7 percent lower at 7.17 euros a metric ton as of 3:26 p.m. on London’s ICE Futures Europe exchange. The contract has lost 60 percent in the past year on concerns that the ETS will be oversupplied for most of the next trading period from 2013 to 2020.
The emission caps that the EU program imposes on more than 12,000 facilities were set before the debt crisis and economic slump. The ETS will be oversupplied by permits covering around 1.1 billion tons of CO2 by 2012, according to Bloomberg New Energy Finance. This surplus may be transferred into Phase 3.
EU Climate Commissioner Connie Hedegaard said last month that the European Commission, the EU regulatory arm, is planning to bring forward an annual report on the emissions trading system and that will be a “golden opportunity” to look into the auctioning regulation.
The planned review of the auctioning rules would change the timing of sales, while keeping intact the amount of allowances to be sold in the eight-year phase through 2012, the commission has said.
After a vote in the Climate Change Committee, EU measures subject to this procedure need to undergo a three-month scrutiny by the European Parliament and national governments. The process typically takes about five months from a vote to adoption.
Separately, EU member states and the parliament are in talks about amending a draft energy savings law by including in it an option for the commission to propose a temporary set-aside of carbon permits as of 2013. National governments have signaled they object to the amendment, opposing a link to the ETS rules in a directive on a different policy area which energy efficiency is.
Any eventual permanent cancellation of permits that could be temporarily withheld under a set-aside proposal would require a revision of the ETS law in a separate process.
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