Bloomberg News

EU Lawmakers Seek One-Time Move to Reduce Carbon Market Glut

November 27, 2012

The European Parliament proposed that the bloc’s regulator delay carbon-permit sales just once as a stopgap measure to tackle a glut that sent prices to a record low, according to a draft report.

The European Commission may adapt the timing of carbon- permit sales to improve the functioning of the market “in exceptional circumstances,” according to the report by Matthias Groote, chairman of the parliament’s environment committee, obtained by Bloomberg News. Groote is overseeing the commission’s proposal to change the EU emissions law to curb oversupply.

“This proposed short-term measure should not be seen as a solution to the current imbalances but rather as an option that ensures the stability of the EU Emissions Trading System until the necessary long-term structural measures are adopted,” Groote said in the report.

At stake is the price of emission permits in the world’s biggest cap-and-trade system after they plunged to a record 5.99 euros ($7.76) a metric ton in April as the economic crisis hurt industrial output, boosting the surplus of allowances to almost half of the average annual pollution limit in the 27-nation EU. The bloc’s program doesn’t allow any price floors or ceilings. The pollution limits it imposes on about 12,000 emitters were set before the debt crisis and economic slump.

Six Options

The short-term strategy proposed by the commission in July consisted of an amendment to the emissions law confirming the regulator’s authority to set the timing of auctions and a separate measure to delay sales. The EU has proposed to postpone 900 million allowances, or about 45 percent of the total annual supply in permits, starting in January 2013.

Separately, the commission also set out on Nov. 14 six options for a long-term overhaul of the EU emissions trading system, also known as the ETS, ranging from adopting a stricter pollution-reduction target to price-support mechanisms.

The delay in auctions “should be limited only to exceptional circumstances, such as the EU ETS is now facing,” Groote said in the report. To ensure that stability and predictability of the cap-and-trade system is not undermined, the decision to change the timing of auctions should be executed only once in the third phase of the ETS, which runs from 2013 to 2020, according to the draft document.

The amendment to the emissions law will need to be reconciled between the parliament and member states and backed by those two before it enters into force. The parliament’s environment committee is due to vote on it in February and the whole assembly is scheduled to vote two months later.

Carbon permits for 2012 fell 1.6 percent to 6.73 euros a ton at 2:52 p.m. on the ICE Futures Europe exchange in London. The allowances have lost 20 percent in the past year.

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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