EU to Transfer $4.5 Billion of CO2 Permits to EIB This Month

The European Union aims to transfer carbon permits from a 3.3 billion-euro ($4.5 billion) reserve to the European Investment Bank this month, enabling the lender to start selling them to help finance innovative energy projects.

The European Commission, the EU regulatory arm in Brussels, said today it expects to adopt on Nov. 18 a regulation which allows the creation of as many as 300 million post-2012 permits from the reserve and their transfer to the EIB even before the registry that’s due to track them is fully operational.

“We will proceed swiftly with the European Investment Bank to account opening to enable the delivery of allowances before the end of the month,” Jos Delbeke, director-general for climate at the commission, said in an EU website statement.

The 27-nation bloc decided in 2008 to use proceeds from the reserve for new entrants to the EU emissions trading system to encourage renewable energy and carbon capture technologies. The Luxembourg-based EIB, which has been mandated to monetize the allowances, signaled last month that sales may begin this year and could last beyond 2012. Every permit carries the right to emit one metric ton of carbon-dioxide.

Erased Gains

EU permits for delivery in December 2013 lost 1.7 percent to 10.94 euros, valuing the reserve at about 3.3 billion euros, compared with as much as 5.9 billion in May. The EIB said last month it will start sales soon after the transfer from the commission.

EU allowances for December 2011 erased earlier gains after the announcement and closed down 1.6 percent at 9.87 euros on the ICE Futures Europe exchange in London.

The total volume to be sold from the reserve, known as NER300, is about 15 percent of the average annual quota of 2.08 billion tons in the 2008-2012 trading period of the European cap-and-trade system. EU permits have lost 30 percent this year on oversupply concerns and speculation that the region’s debt crisis will worsen at the time of economic slowdown.

“The delivery of allowances will be announced on the ETS regulatory updates as well as on the EIB’s NER300 webpages,” the EU said in the statement today.

Permits from the NER300 reserve will be the first brought to the market from the next phase of the European carbon cap-and-trade program that begins in 2013. The EU trading system, which imposes emission limits on more than 11,000 power plants and manufacturers, started in 2005, is now in the second phase from 2008 to 2012.

Eight Projects

The planned aid from the reserve is for at least eight carbon-capture projects and 34 renewable-energy technologies, covering up to half the construction and operation costs that companies and national governments will also help finance.

Clean energy technologies will help the EU meet its climate goal of reducing greenhouse gas emissions by 20 percent in 2020 compared with 1990 levels. The NER300 aid is on top of subsidies approved in 2009, when, under a 5 billion-euro economic-stimulus package from the EU budget, the bloc earmarked 1 billion euros for carbon-capture projects by utilities including Vattenfall AB, Endesa SA and Enel SpA and 565 million euros for offshore wind power initiatives.

The EIB has said sales from the reserve will commence with over-the-counter transactions and then other channels, including ICE Futures Europe and the European Energy Exchange, and auctions.

Second Tranche

Sales from the first 200-million-ton tranche of permits, with a settlement date of December 2013, must be completed within 10 months from delivery, implying an indicative volume of 20 million allowances per month, according to the EIB. The bank must start sales within a month from delivery.

The bank said in October it wants to sell the remaining 100 million permits in a second tranche “immediately after the conclusion of the first tranche sales. It’s possible, but not certain, that the sales may go beyond the previously estimated end-2012 finish date, it signaled.

To minimize any impact of sales on the secondary market, the EIB aims to spread the volumes as evenly as possible over the selling period. It intends to go to the market more frequently than the minimum bi-weekly period specified in the agreement with the commission.

Once sales start, the EIB will provide monthly reports of overall volumes and aggregated prices it achieved. The bank will also issue a statement when it becomes a member of an exchange or exchanges, obtaining the right to start trading, and plans to publish a calendar for auctions, it said.

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