EU May Need Tighter Supply to Avoid CO2 Slump, Adviser Says
The European Union may need to tighten the supply of permits in its emissions-trading system to avoid a price slump if planned energy-efficiency measures curb demand for pollution rights.
“If we are serious about our energy-efficiency targets, then this would almost take the value of emissions allowances down to zero,” Pierre Dechamps, adviser for energy, climate change and environment at the EU regulator, said today at a conference in London. “Unless we introduce more stringent measures or tighten the market, we are in a situation where there will be a drastic decline in prices,” Dechamps said.
The EU’s emissions trading system, known as the ETS, is the cornerstone of Europe’s plan to reduce greenhouse gases blamed for climate change. It imposes pollution limits on more than 11,000 utilities and manufacturing companies and sets a 2020 cap on discharges that would be 20 percent below 1990 levels.
The European Commission, the EU regulator, said last week it planned to oblige governments and businesses to make energy efficiency a higher priority to help the bloc exceed its 20 percent reduction goal and boost the security of supplies. The commission proposed slashing carbon dioxide emissions by 80 percent by 2050.
One EU allowance carries the right to emit one metric ton of carbon dioxide. Permits for December rose as much as 5 percent to 16.51 euros ($23.06) a metric ton on the ICE Futures Europe exchange in London, the highest intraday level since May 12, and were at 16.45 euros as of 3:22 p.m.
Phase Three
To avoid a drop in the price of carbon allowances as new efficiencies lower emissions, the EU could withhold permits starting in the next trading period, which runs from 2013 to 2020, the commission said in a policy paper published last week. Creating such a set-aside from the pool of allowances to be auctioned to companies by member states would need backing from the EU governments and potential cancellation of permits in the reserve would require a change of the bloc’s emissions law.
“Given support by other European institutions and further consultations with stakeholders, a gradually increasing number of allowances in the auctioning budget could be set aside from 2013,” the commission said in a statement on March 8.
The EU, which has given away the majority of permits since it started the program six years ago, will sell most of them in the next phase from 2013.
The commission’s plans to withhold some permits sparked criticism from energy-intensive industries, including the association of the European steel producers, Eurofer, and the association of European employers, BusinessEurope. Eurofer said last month the set-aside would effectively mean tighter emission caps and higher costs for companies in the EU carbon program.
The commission revised the option to set aside permits 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.
With assistance from Ewa Krukowska. Editors: Mike Anderson, Bruce Stanley.
To contact the reporters on this story: Catherine Airlie in London at cairlie@bloomberg.net and 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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