Shell, Alstom Urge EU to Strengthen Its Carbon-Trading Program

Europe must strengthen its emissions trading system to help carbon prices recover from a four-year low and encourage investment in green technologies, companies including Alstom SA and Royal Dutch Shell Plc said.

The simplest way to bolster the world’s biggest carbon market is to withhold some permits in the next phase of the cap-and-trade program starting in 2013 and consider an auction reserve price as of 2020, they wrote in a letter to Jose Barroso, the president of the European Commission, the EU regulatory arm in Brussels. The European emissions trading system is known as the EU ETS.

“A well-functioning ETS with a robust price signal will restore confidence in clean technology investment, reaffirm the ‘flagship’ status of the scheme, and reinforce the international credibility of the EU ETS,” according to the letter sent by the Prince of Wales’s EU Corporate Leaders Group on Climate Change on behalf of its members and companies in the clean energy industry including Dutch energy company Eneco Holding NV.

EU carbon permits for December fell 8.3 percent to 6.45 euros yesterday at the ICE Futures Europe exchange in London. They have lost 55 percent this year amid speculation that the euro-area debt crisis may worsen and concerns that oversupply of permits may increase following the introduction of new energy-efficiency legislation in Europe.

“Since the EU ETS is a leading symbol of the effort to tackle global climate change and reach Europe’s commitments, it is critical that the European institutions take decisive action now,” according to the letter, also signed by Acciona SA, the Spanish construction firm that transformed itself into the fifth-biggest wind-energy producer.

Recalibrate the ETS

In June, the commission suggested that the bloc may need to “recalibrate” its cap-and-trade program by withholding a number of permits corresponding to extra emission reductions resulting from newly proposed energy efficiency directive, also known as the EED.

“We strongly support the Energy Efficiency Directive, and welcome increased energy efficiency leading to CO2 reductions across all sectors, but call upon the European institutions and member state governments to ensure that the EED or future policy measures are aligned with the ETS,” the companies, which also include Denmark’s Dong Energy A/S and U.K.’s second-largest electricity producer SSE Plc, said in the letter.


The commission first came up in 2010 with the idea of setting aside allowances in the eight-year third phase of the emissions program and included a reference to such a tool in a March 2011 policy paper, known as the low-carbon 2050 road map.

EU regulators would first need the green light from member states to come up with a draft measure on the set-aside, which could be gradually created from the pool of permits to be auctioned to companies by countries starting in 2013.

While the commission and member states could agree to postpone the auctioning of some allowances without changing the EU emissions-trading directive, an eventual cancellation of permits after 2020 would require a revision of that law, a step that involves approval by the European Parliament and the council of ministers.

Macroeconomic Shocks

The emissions trading system is the cornerstone of the EU policy to cut greenhouse gases blamed for climate change. It imposes pollution limits on more than 11,000 utilities and manufacturers, leading to a cap in 2020 that will be 21 percent less than 2005 discharges.

Started in 2005 with a three-year trading period, the ETS is now in its second phase that ends in 2012. In the third stage of the program from 2013 through 2020 the EU will be moving toward auctioning, gradually phasing out free permits given to companies since the inception of the system.

In the fourth phase, regulators EU should introduce a mechanism that would protect the ETS from future macroeconomic shocks, according to the letter.

“This could be delivered through a number of mechanisms including consideration of an auction reserve price,” the companies said.

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