Denmark, which holds the European Union rotating presidency, seeks to stimulate a debate on future greenhouse-gas reduction goals in March to prevent further declines in carbon prices after they dropped to a four-year low.
The price of EU emission permits is lower than the bloc expected when the system was started in 2005 and governments’ support for a policy paper sketching out the most cost-efficient way to long-term climate goals could help the market, Martin Lidegaard, Denmark’s climate minister, said in an interview in Brussels today. The policy paper presented last year by the European Commission, the EU’s regulatory arm, maps out potential future goals, or milestones, for 2030 and 2040.
Any potential decision to withdraw a number of allowances from the market, an option some European Parliament members want the commission to propose in order to curb oversupply, requires more certainty about the legal initiatives currently being debated by the EU, he said. The region’s environment ministers are next due to discuss climate policies when they meet on March 9 in Luxembourg.
“We will try to talk to all our colleagues,” Lidegaard said. “When it comes for the milestones for 2030, it’s my impression that there might be willingness among many countries to address the issue simply because it’s recognized that we need the price signal for the industry and investors.”
EU carbon permits dropped to as low as 6.30 euros ($8.17) in December from almost 30 euros in July 2008 on concern that the cap-and-trade system, the world’s largest, is oversupplied amid an economic slowdown. The EU emissions trading system, or the ETS, is the cornerstone of the region’s climate policy and leads to a cap on utilities and factories in 2020 that will be 21 percent below 2005 levels. It expanded this year into aviation.
The 27-nation bloc, which wants to lead the global fight against climate change, is on track to meet its headline goal of cutting greenhouse gases by 20 percent in 2020 and plans to lower pollution by at least 80 percent by 2050. The most cost-effective way to achieve that would be to lower discharges by 40 percent in 2030 and 60 percent in 2040, according to the commission’s strategy paper, known as the Climate Roadmap.
Member states remain split on future policy and a potential move to a stricter goal for 2020, which the Climate Roadmap showed was feasible. While richer EU nations are ready to deepen carbon cuts, poorer member countries are concerned about the cost of a more ambitious switch to cleaner fuels. Poland in June vetoed a planned ministerial declaration on future emission reductions.
Carbon permits for December 2012 delivery traded 0.4 percent higher at 7.54 euros a metric ton as of 2:40 p.m. on London’s ICE Futures Europe Exchange. The contract has lost 51 percent from a year ago as the economic slowdown cut into industrial production, undermining demand for pollution rights, whose supply was set by member states before the crisis started.
The current price is unsustainable in the longer term, according to Lidegaard.
“There are many factors that have impact on the price,” he said. “One way to go forward is to take aside allowances from the market. But we have to know how many would be the right figure and I don’t think we can estimate that before we know where we’re headed with the efficiency directive.”
The draft energy efficiency law, requiring more energy savings in the region, is currently being discussed by the European Parliament and national governments. To prevent the new measures from further damping demand for emission permits in the ETS, some deputies want to include in the law an amendment calling on the commission to propose a set-aside of allowances.
Even if such an amendment is backed by the Parliament and national governments and becomes a part of the energy efficiency law, withdrawing some allowances from the market would require a separate regulation to be proposed by the commission and approved by member states.
“I think the right order here is to get all our initiatives toward 2020 clear and try to make a calculation does it makes sense to create a set aside,” Lidegaard said. “What is hard to say now is the number of allowances. We need a more stable ground to consider such a decision.”