Carbon Surplus-Fix Struggle Shows EU Policy Unease, Russia Says

The European Union’s struggle to cut a surplus of permits in its carbon market, the world’s largest, shows the bloc’s unease with a policy it wants other nations to adopt, according to Russia’s climate envoy.

The European Parliament’s rejection last month of a measure to allow delaying the sale of some EU allowances goes against the bloc’s efforts to limit the use of excess United Nations emissions permits known as Assigned Amount Units, Moscow-based Oleg Shamanov said by e-mail. Some EU lawmakers argued the bloc’s proposal amounted to market intervention.

The EU is “uncomfortable internally with measures that it was promoting internationally,” Shamanov, who negotiates UN climate-protection agreements for Russia, said yesterday. “The vote against looks somehow inconsistent with the EU’s stance against using spare AAUs within the Kyoto system.”

The 1997 Kyoto Protocol, which assigns emission rights to participating nations, will have a surplus of about 14.7 billion metric tons of carbon dioxide equivalent in the five years through 2012, according to a Bloomberg New Energy Finance forecast. Envoys are still to finalize a strategy on dealing with the excess AAUs, of which Russia holds about 60 percent.

Russia opted out of the Kyoto agreement starting this year. The extended protocol would cancel any surplus sovereign greenhouse-gas permits for the eight years through 2020 above the average annual emissions of the country in the three years through 2010, according to text from December talks in Doha.

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The EU wasn’t seeking to eliminate the surplus AAUs in Doha, said Artur Runge-Metzger, the EU’s lead climate negotiator.

“We didn’t get rid of the surplus,” he said in a May 2 interview at climate talks in Bonn, after Shamanov first criticized the EU’s stance. “We said we need to manage the surplus under Kyoto and I think we did that quite successfully with the Doha decisions.”

Under those decisions, nations with surpluses may have restrictions on how they can use them, he said.

The European Parliament will hold a second vote in July on its stop-gap plan to bolster prices in its market. The EU carbon permit surplus in 2012 reached about 2 billion tons, or about a year of emissions, the bloc said May 16.

Shamanov compared the EU’s attitude on AAUs to March’s bailout of Cyprus, in which the island nation bowed to demands from creditors to shrink its banking system and force losses on depositors.

“It’s like saying ‘Sir, you don’t have your money,’” he said. “It was earned lawfully. It’s extremely painful” to have assets taken away, he said.

To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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