Finland threw its weight behind a European Union rescue plan for the bloc’s carbon market as Denmark said the situation was unsustainable, highlighting the need for governments to tackle a record surplus of allowances.
Finland said today that it is in favor of the European Commission’s stop-gap measure to delay auctions of some carbon permits, joining Spain, Italy and France, which signaled last year that they are going to support the proposed market fix. At stake is the price of permits in the world’s biggest emissions trading program, which slumped to a record low last week on concerns that policymakers will fail to act to strengthen the market.
“The Finnish government’s official position is to support the commission’s proposal for backloading,” Magnus Cederloef, senior technical adviser at the Environment Ministry in Helsinki, said by telephone today. “However, Finland opposes permanent withdrawal of permits, which some EU countries have discussed, although no such proposal has been made.”
The commission’s plan to sell fewer carbon permits in 2013- 2015 and return them to the market in 2019-2020, a strategy known as backloading, has caused rifts among governments, industries and lawmakers. Several EU member states set conditions for supporting the measure and some don’t have a formal stance on the plan yet. Backloading needs qualified majority support from governments to be implemented.
Carbon permits for December dropped 2.4 percent to 4.08 euros a metric ton as of 4:01 p.m., according to data from the ICE Futures Europe exchange in London. The contract slumped to a record low of 2.81 euros last week, losing 89 percent since it started trading in April 2008 as the financial crisis hurt industrial production and cut demand from industry for emission permits. That boosted the surplus of allowances to almost half of average annual pollution limit in the system.
The current situation on the EU carbon market is “unsustainable,” Danish Climate Minister Martin Lidegaard said today in a phone interview. Denmark, along with the U.K. and Sweden, favors deepening the EU emission-reduction target as the best option to tackle the glut, he said.
“Meanwhile, we’re painfully aware of the very small chance to pass that in the EU due to strong opposition from a number of countries,” Lidegaard said. “The problem of backloading is that it will turn out as a Sword of Damocles, hanging over our heads ready to fall, if it doesn’t have any impact on prices.”
Denmark will eventually adopt a similar position to the U.K., which is to support the backloading proposal while lobbying for a more permanent solution, according to Matthew Cowie, an analyst at Bloomberg New Energy Finance in London.
“Perhaps a better analogy for backloading is to compare it to the fiscal cliff in the U.S. which helped to speed up negotiations around the federal budget,” Cowie said by e-mail.
To be enacted, the EU plan to delay sales of 900 million carbon permits needs 255 out of 345 votes from national governments in a ballot system with votes weighted by each country’s size.
Spain, Italy, France and Belgium, which signaled last year they support backloading, have 97 votes together. The Netherlands, whose parliament called on the nation’s government to support the commission’s proposal, has 13 votes. Lithuania, which said last month that in principle it has nothing against the plan, as well as Denmark and Finland have seven votes each.
The U.K., with 29 votes, set some conditions for its support while signaling flexibility, EU officials with knowledge of the matter said last week. Germany, which also has 29 votes, remains undecided. The government in Berlin holds the key to the fate of the backloading proposal, according to analysts including Trevor Sikorski at Barclays Plc in London. Poland, with 27 votes, is leading efforts to block the measure.
Marcin Korolec, Poland’s Environment Minister, said today he was “surprised” some countries consider support to backloading. “It is fiscal policy in disguise, not CO2- reduction tool,” he said on his Twitter Inc. account.
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