EU Could Use ‘Floating Cap’ in Its Carbon-Trading Market, Accenture Says
The European Union could use a “floating cap” to adjust supply in its carbon market and keep prices from falling, according to an analyst at Accenture Plc.
Distribution of EU carbon permits “could be handled in a manner not dissimilar to how central banks handle money supply and interest rates,” said Mauricio Bermudez Neubauer, a London- based lead consultant on carbon markets at Accenture. A floating cap, where supply may be linked to economic activity and permit prices, “would enable the regulator to serve the joint objectives of delivering environmental targets and stimulating investment in decarbonization.”
To support the carbon market as energy efficiency programs lower emissions, the European Commission offered yesterday the option of withholding an unspecified number of permits from the world’s largest cap-and-trade program starting in 2013. The EU said the most cost-efficient scenario for long-term emission reductions is a 40 percent cut in 2030 and 60 percent in 2040.
The way the EU calculates caps is written into law and any change to this would require approval by member states and the European Parliament.
The climate-fighting roadmap released yesterday by the commission “makes it clear that the permanent removal of set- aside volume needs to be a political decision and not something that can be carried out within terms of the existing directive,” said analysts at Bloomberg New Energy Finance in London including Matthew Cowie. “The clear political difficulty of tightening the EU emissions trading system cap and the prospect of stronger mandated action on energy efficiency could be bearish.”
Carbon Permits Decline
Carbon permits for December fell 0.1 percent to 15.87 euros a metric ton on the ICE Futures Europe exchange as of 2:10 p.m. in London. They reached 16.02 euros on March 7, their highest in almost five months.
The commission plans to present “legislative proposals with very concrete binding measures” in a few months, it said.
“Without a set-aside, energy savings achieved by one company would result, via relatively lower demand for allowances, in weakening of the price of allowances,” the commission said. “This could prompt another company to produce more, consume more energy and emit more carbon dioxide. As a result, net energy savings would be low or non-existent.”
The commission revised the proposal from the original draft obtained by Bloomberg News last month, when it suggested that between 500 million and 800 million allowances could be withheld in the eight-year trading phase through 2020. That would correspond to as much as 5 percent of supply.
To contact the reporters on this story: Mathew Carr in London at m.carr@bloomberg.net
To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net
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