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EU CO2 Measure Sound Given Cannibalization, Bank of America Says

A decision to potentially set aside European Union carbon allowances, temporarily cutting supply, makes sense because energy efficiency laws would otherwise cannibalize emission reductions, said Bank of America Corp.

The EU parliament’s industry committee voted yesterday in Brussels to amend the planned efficiency law by saying regulators should put forward, “if appropriate,” measures that “may include withholding of the necessary amount of allowances” from auctions as early as next year. Prices in Europe’s cap-and-trade system dropped to a record last month because of oversupply.

The vote “makes clear there is strong and widespread support to rehabilitate the EU emissions-trading system,” said Abyd Karmali, head of carbon markets at Bank of America in London. “It is an example of an ex-post adjustment, but one that has a sound analytical basis given the cannibalizing of EU-allowance demand by measures complementary to the emissions trading system,” he said yesterday by e-mail.

The proposal probably will receive approval from EU nations via an amended carbon-permit-auction regulation, or “as part of a bundle of changes to the energy efficiency directive,” said Karmali, who is also president of the Carbon Markets and Investors Association, the lobby group.

Carbon permits for December fell 4 cents today to 8.98 euros a metric ton on ICE Futures Europe in London as of 8:26 a.m. They’ve risen 37 percent after reaching a record low on Jan. 4.

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