European Union carbon permits declined as much as 6.3 percent because of doubts that the bloc’s regulator will approve a cut in supply before auctions start in 2013.
Carbon for December dropped as low as 6.75 euros ($8.19) a metric ton on London’s ICE Futures Europe exchange after the European Commission published a draft proposal to delay sales for 2013 through 2015, and EU Commissioner for Climate Action Connie Hedegaard said she was confident the measure would gain approval this year.
“The EU always struggles to move fast,” said Mark Owen- Lloyd, head of emissions trading at CF Partners (U.K.) LLP in London, which manages carbon allowances on behalf of clients.
The commission today published a proposal to amend its auctioning regulation, together with a document that studied scenarios in which as many as 1.2 billion permits would be withheld from the market. It also published a draft amendment to its emissions-trading directive that would add a single line reasserting the regulator’s legal right to amend the auctioning schedule.
The speed with which the commission can act is a matter “not so much of the political will but the political ability,” Owen-Lloyd said.
United Nations offsets fell to records as EU permit prices declined. Certified Emission Reductions for December slid 10 percent to 2.84 euros a ton at 4:59 p.m. in London, while Emission Reduction Units weakened 9.8 percent to 2.59 euros. EU permits for December were at 6.87 euros.
Under the bloc’s comitology process, the proposal to amend the auctioning schedule has been sent to the Climate Change Committee, which is composed of representatives of member states. The committee, which meets once a month, will begin to consider the proposal at its next meeting, scheduled for Sept. 19, Hedegaard said today in a phone interview from Brussels. It will also consider the results of a stakeholder consultation that began today and is set to end Oct. 3.
After deciding on the volume to be withheld, the climate change committee will take a final vote on the draft, which could take place at its November meeting. The decision will then be sent to the European Parliament and member states for a fixed three-month period of scrutiny. At the end of the scrutiny period, the proposal may be formally adopted by the commission and come into force without further delay.
The regulator today also sent its one-line change to the emissions-trading directive to the European Parliament and the member states.
Under the so-called “fast-track” co-decision process, the bloc’s assembly and the 27 nations may approve amendments to existing directives in as little as one month. Previous examples of this process include the adoption of changes to the conclusions of the Arhus Convention on Access to Information in Environmental Matters in 2006.
“I’m quite confident that member states realize the market needs clarity before the end of this year,” Hedegaard said. “If the political will is there, the market can know by the end of this year.”
The earliest possible date by which the market regulator can enact the changes would be March 2013, Matthew Cowie, an analyst at Bloomberg New Energy Finance in London, said today in an e-mailed note. The most realistic date is the third quarter of 2013, he said.
“The biggest remaining question is how the directive and auctioning decisions can overlap,” he said. “We are still in a more uncertain position than we were two weeks ago,” when the market did not foresee an amendment to the emissions-trading directive, he said.
The EU may withhold as many as 650 million tons of allowances out of a total of 1.15 billion tons of permits planned for auction in 2013, according to one scenario in the report published on the website of the EU commission in Brussels. The bloc may cut auction volumes by 300 million tons in 2014 and 50 million in 2015. Under a less-ambitious scenario, 2013 volumes would be cut by 200 million tons, 2014 by 150 million and 2015 by 50 million.
The volume taken out over the three years through 2015 would potentially be returned in the three years through 2020, according to the draft law.
The EU market began in 2005 to help cut emissions linked to climate change. Carbon emitted from cars, power stations and factories will need to be reduced by an average of 6 percent a year to stabilize the Earth’s climate by 2100, the U.S. National Aeronautics and Space Administration said in April. Pricing emissions is the world’s best hope, it said.
Europe’s program has helped. The amount of emissions dropped 2 percent in 2011 in the market. The EU may exceed its goal of a 20 percent cut in the 10 years to 2020, the European Energy Agency said in October.
The recession has roiled the region’s carbon market, leaving demand lower. In the first phase an oversupply of permits caused prices to collapse to 1 euro cent a ton in 2007. After allocations were cut 9.4 percent, they rebounded, surpassing 29 euros a ton in 2008.
The EU market will probably still be oversupplied by the equivalent of a year’s total allowances by 2020, Barclays Plc forecast on June 22.
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