Higher Carbon Price Needed to Drive Innovations, EU Connie Hedegaard Says

The European Union Climate Commissioner said higher carbon prices are needed to drive innovations as nations establish a framework to cut emissions.

Pollution allowances in the EU’s emissions-trading system, the world’s largest, lost 40 percent from their 2008 levels as the global financial crisis hampered growth and reduced industrial output. Permits for December 2010 closed today at 15.74 euros ($20.28), compared with 26.47 euros two years ago.

“If there’s really a prospect that the carbon market continues and in a way that is interesting for business, that could be one of the tools to get a higher carbon price,” EU Climate Commission Connie Hedegaard said in an interview after an informal, two-day meeting of climate envoys in Geneva.

The EU cap-and-trade program, known as the ETS, covers more than 12,000 facilities that produce energy or goods ranging from paper to cement. Polluters must have an allowance for each ton of carbon dioxide they let off when burning fossil fuels. Those producing more than their allowance have to buy more; those that emit less can sell their surplus.

The EU aims to make the ETS, started in 2005, the cornerstone of a global carbon market. The 27-nation bloc has pledged to cut greenhouse gases by one-fifth by the end of this decade compared with 1990 levels and has said it may boost that target to 30 percent should other countries follow suit.

‘Very Useful’

The bloc stopped short of doing so at last year’s global climate summit in Copenhagen, citing inadequate efforts by the U.S. and China. The next round of international talks is scheduled to start at the end of November in Cancun, Mexico.

Hedegaard said carbon markets are an important source of climate financing for poorer nations. Industrialized countries pledged to contribute $100 billion a year by 2020 under a non- binding accord in Copenhagen.

While the United Nations’ carbon program, the Clean Development Mechanism, has been “very useful,” it will need to “substantially reformed,” and a new mechanism should be developed to scale up the carbon market, she said.

Under the CDM, investors are awarded Certified Emission Reduction credits for projects that lower greenhouse gases in developing nations. The credits can then be swapped on a one- for-one basis with permits in the EU’s carbon market.

“Many developing countries, particularly the least developed countries, think it’s an extremely bureaucratic thing,” Hedegaard said. “It must me more simple, streamlined. Today we have most of the CDM projects in very few number of Countries, and we should go more for a sectoral approach.”

To contact the reporter on this story: Ewa Krukowska in Geneva at ekrukowska@bloomberg.net;

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