Feb. 7 (Bloomberg) -- The European Union needs to fix its “bust” emissions cap-and-trade program, the world’s largest, and improve existing energy rules after investors lost trust in the EU’s policies, said EON AG’s chief executive officer.
“Ladies and gentlemen, let’s talk real: the ETS is bust, it’s dead,” EON’s Johannes Teyssen said. The call from the CEO of Germany’s biggest utility to “start fixing the ETS” comes after EU carbon prices tumbled to a four-year low in January because of the economic crisis and concerns that planned new energy efficiency measures will further curb demand for emission permits.
“Does the price give any signal for new investments? No. None,” Teyssen said. “I don’t know a single person in the world that would invest a dime based on ETS signals.”
As EU regulators and national governments discuss scenarios for the energy industry to achieve the 27-nation bloc’s long-term goal of reducing greenhouse gases by at least 80 percent in 2050, they should ensure the measures already in place, including the Emissions Trading System, renewable energy and plans for internal gas and power markets, are effective and consistent, Teyssen told a conference in Brussels.
Started in 2005, the EU cap-and-trade program is the cornerstone of the bloc’s carbon-reduction policy. It imposes pollution limits on more than 11,000 manufacturers and utilities in the region, allowing those who discharge less carbon dioxide to sell their surplus allowances. The system expanded this year to include flights to and from Europe.
Excess of Permits
Carbon permits for December 2012 delivery lost as much as 1.3 percent to 8.59 euros a metric ton on London’s ICE Futures Europe Exchange today. The contract has dropped 43 percent from a year ago amid speculation that the excess of permits, whose supply was set by member states before the crisis started, will weigh on the market in the coming years.
Analysts at Bloomberg New Energy Finance predict that the ETS will be oversupplied by about 1.1 billion metric tons in the current trading period from 2008 to 2012. This surplus may be transferred, or “banked,” into the next phase from 2013 to 2020, when governments will auction more permits instead of giving them to companies for free.
“Fix it or abate it,” Teyssen said during the conference on the Energy Roadmap 2050, a strategy paper by the European Commission to map the way to low-carbon goals in the energy industry.
“Don’t continue to deliver Sunday speeches on this great backbone of energy transformation which is not even an efficient means to collect taxes anymore,” he said. “If you look at national budgets, what the governments expected in 2013, money is gone. Not even the money collection happens anymore.”
Any measure to curb the oversupply of allowances in the ETS in order to support the price would have to be formally proposed by the commission, the EU regulatory arm, and backed by national governments, which remain divided over the need for more stringent climate policies. The bloc has to consider how to strengthen the emissions trading program, the Climate Commissioner Connie Hedegaard said today.
The carbon cap-and-trade program can “co-exist” with rules to boost energy efficiency and the commission is following closely a debate in the European Parliament on the draft energy savings law, she told the conference.
Proposed modifications to the directive include a plan backed by the Parliament’s environment committee to set aside a “significant” number of permits as of 2013. The industry committee is set to vote on the draft amendment on Feb. 28.
EU energy ministers are due to met later this month and environment ministers are set to gather in March to discuss strategies linked to the region’s carbon-reduction plans until 2050. Environment groups have called on the governments to agree to deepen the region’s emissions-cut goal from the current 20 percent in 2020 compared with 1990 levels to help boost carbon prices and incentivize investment in clean energy.
“It’s time not just to talk about new targets for 2020 and beyond, it’s time to fix the world today because otherwise new targets beyond 2020 may be very little meaningful,” Teyssen said. “If governments were treating the euro the same way that we all treat the ETS it’d be dead tomorrow morning.”
He also called on the EU to work toward an internal gas and power market. The commission has said delays in breaking down lingering national barriers may put at risk the bloc’s goal to complete the integration by 2014.
The EU should improve its measures and ensure “coherent and consistent” laws to promote the use of renewable energy, which is projected in the Energy Roadmap to play an increasingly important role in the bloc, according to Teyssen.
“I share the target, I share the goal, but I distinctly disagree that the national governments and the commission are so silently accepting that things deviate and talk about new systems instead of fixing the old ones,” he said. “We don’t need more regulation, we need you here in Brussels to fix the old ones.”
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