The European Union should act now to strengthen the bloc’s emissions trading system and help prices recover after they slumped amid a glut, according to the U.K.’s Department of Energy and Climate Change.
Delaying the sales of 400 million to 1.2 billion allowances under a strategy proposed by the EU regulator would boost carbon prices at the beginning of the next emission market phase starting in 2013 while lowering it at the later stage of the trading period, DECC said in an analysis published on its website.
“If allowances are canceled and permanently removed from the market, there’s a sustained positive impact on carbon price with a consistent rise in prices over all years up to 2020,” DECC said.
The average price of permits in the next trading period in the EU emissions trading system, which runs through 2020, may rise by 4 to 24 euros a metric ton if the EU decided to cancel from 400 million to 1.7 billion allowances, compared with scenarios without permanent removal of allowances, according to DECC estimates. Permanent removal of allowances would also increase member states’ revenue from carbon auctions, DECC said.
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