Bloomberg News

EU CO2 Auction Delay Proposal Said to Face Hurdles in Commission

June 22, 2012

A draft European Union proposal to postpone sales of some carbon allowances faces hurdles after it received a negative opinion from three departments of the bloc’s regulatory arm, people with knowledge of the matter said.

The proposal on carbon auctions drafted by the European Commission’s climate department is the subject of objections by the directorates for industry, transport and economic and financial affairs, according to three people who declined to be identified because internal consultations on the document are confidential.

The draft regulation, which would aim to help carbon prices recover after they slumped to a record low earlier this year, needs approval by the 27 EU commissioners before it is sent to national governments for consideration. While the commission votes by qualified majority, its members traditionally have sought compromises on draft rules before adopting them.

EU Climate Commissioner Connie Hedegaard said earlier this month that she aimed to present the proposal to member states before the European summer recess in August. The negative opinions from departments headed by Industry Commissioner Antonio Tajani, Transport Commissioner Siim Kallas and Economic Affairs Commissioner Olli Rehn may mean the commission will need more time to iron out a compromise, the three people said. It is too early to rule out the end-of-July deadline, they said.

A spokeswoman for the EU, who declined to be named under department policy, said the commission doesn’t comment on draft proposals.

Carbon Allowances

Hedegaard first said in April that her directorate was working on a proposal to delay auctions of some carbon allowances at the beginning of the next trading period, which runs from 2013 to 2020, and then reintroduce them to the market later.

The number of permits to be postponed in the draft regulation is confidential. The proposal will be based on the findings of a planned report by the climate department on the functioning of the EU cap-and-trade carbon market. The report, which will be published along with the proposal, will sketch out three theoretical scenarios to temporarily curb the oversupply: withholding 400 million, 900 million of 1.2 billion permits through 2015, people familiar with the matter said last week.

The objections voiced by the three departments include concerns about the impact of the regulation on the predictability of the EU emissions trading system, or ETS, a lack of a full impact assessment, and questions over the legality of postponing auctions.

Climate Department

The climate department has said that delaying the supply of allowances can be done through an amendment to rules on carbon auctions through the so-called comitology process. That would avoid a revision of the bloc’s directive on the ETS, which lays the foundation for carbon trading in the region.

While lawyers including Brussels-based Mihalis Kritikos, an expert in EU law at White & Case legal practice, have argued that a regulation to delay some auctions would be legitimate, Luther Rechtsanwaltsgesellschaft mbH, a German firm representing energy-intensive industries, said yesterday that the planned proposal would breach the law.

The bloc’s market will be oversupplied with about 1.1 billion permits by the end of the current 2008-2012 trading period, according to Bloomberg New Energy Finance. The surplus may be carried over to the next stage in the ETS.

EU permits for December rose as much as 7.5 percent today to 8.14 euros a metric ton in the ICE Futures Europe exchange in London. The contract is still down 48 percent from a year ago on concerns that the excess amount of permits may weigh on the market at a time of recession and debt crisis.

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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