EU to Hold Consultations on Volume for Pre-2013 Carbon Auctions

The European Union regulator will consult emission-market participants, investors and experts on the volume of carbon allowances for the period after 2012 that could be sold at early auctions.

The volume deemed necessary by analysts and power companies to ensure “a smooth transition” to the trading phase from 2013 through 2020 in the EU cap-and-trade system ranges from 100 million to 300 million permits, the European Commission’s climate department said in a discussion paper for a Dec. 13 stakeholder meeting.

Those amounts are in addition to the 300 million allowances from a reserve to spur clean-energy projects that the European Investment Bank is due to sell before 2013, according to the commission.

“The commission invites experts and stakeholders to submit their views on what volume they think would be appropriate,” the EU regulator said on its website. Written consultations will be open from Dec. 6 to Feb. 7, 2011.

The 27-nation EU, which has given away the majority of allowances since it started the world’s largest cap-and-trade program in 2005, will require most emitters to purchase their allotment of permits in the third phase starting in 2013. European power producers, including Germany’s second-biggest utility, RWE AG, have said they need phase-three permits immediately to hedge their future electricity sales.

A decision on early auction volumes will be included as an annex to the auctioning regulation that member states agreed to on July 14. The regulation also gave EU countries an option to apply for permission to run national auctions alongside the common platform.

‘Hardly Feasible’

“The question arises by when first auctions can realistically be held,” the commission said. “In view of the further work needed, a start of phase-three auctions in 2011 is hardly feasible.”

EU allowances for delivery in December 2011 increased 0.9 percent to 15.08 euros a metric ton on the ICE Futures Europe exchange as of 4:35 p.m. in London.

The main risk in the decision about the number of permits to be sold early is “a temporary undue prices fluctuation upward or downward” if the determined volumes were too high or too low, the commission said.

The key elements to be taken into account when setting the appropriate volume level will include hedging needs and demand for allowances needed for compliance in the current 2008-2012 phase, mainly coming from the power sector, according to the discussion paper.

New Entrants

On the supply side, the commission will analyze the surplus of allowances for the current trading period as well as auctions of any remaining permits from a reserve for new entrants or those resulting from closure of installations. It will also take into account United Nations offsets available for compliance and the sale of permits by the EIB.

The bloc will auction around 60 percent of the total number of permits in 2013, according to the commission estimates, and the proportion will increase in coming years. The cap for CO2 discharges for that year has been set at 2.04 billion tons, including aluminum and chemical makers that join the program in the third phase. A further adjustment is planned for airlines that will become part of the system from 2012.

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

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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