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EU Nations May Leave Out Carbon Set-Aside in Energy Law

Governments in Europe intend to exclude from a planned energy law the option of withholding some carbon permits from the market, setting up a possible clash with European Parliament members seeking higher emission prices.

The Danish government, which holds the 27-nation European Union’s rotating presidency, left out the possibility of setting aside carbon-dioxide allowances in its initial version of the legislation. The European law must be approved by national governments and the EU Parliament.

“The text that we put on the table takes the viewpoint of the majority of member states on what should be included in the energy-efficiency legislation,” Jakob Alvi, a Brussels-based spokesman for the Danish presidency, said today by phone.

At stake is the cost of CO2 in the world’s biggest emissions market, which imposes pollution quotas on more than 11,000 facilities including plants owned by Electricite de France SA, Europe’s biggest power generator, and Royal Dutch Shell Plc, the region’s largest oil company. A set-aside could help carbon prices recover after they lost 47 percent in the past year amid an oversupply.

A Parliament committee voted last week to insert in the law a provision saying the bloc’s regulators should put forward, “if appropriate,” measures that “may include withholding of the necessary amount of allowances” from auctions as early as next year.

The Danish proposal, based on comments received from EU governments, seeks to strike a balance between the “necessary level of ambition” in the law on energy savings and concerns voiced in European capitals.

Iron Out Differences

Representatives of the Danish government and of the 754-seat Parliament will seek to iron out differences over the draft legislation in the coming weeks. Before that, national officials will discuss the matter among themselves to agree on their negotiating stance.

“The set-aside amendment hasn’t been the subject of discussions among member states so far,” Alvi said. “Later on, when we will prepare for entering the negotiations with the Parliament, this issue will most likely be debated.”

The outcome may determine the willingness of the European Commission, the EU’s regulatory arm, to seek a temporary curb on the supply of CO2 permits to be used by energy and manufacturing companies from 2013 to 2020. While the commission has the right to take such an initiative in any case, the conflict over including a set-aside option in the energy-efficiency legislation signals the political forces at play.

Negotiations This Month

“We expect to start negotiations with the Parliament later this month,” Alvi said. “The aim of the presidency is to finalize the work on the legislation by the end of June.”

EU diplomats have signaled governments aren't certain whether the draft energy-efficiency law should refer to the option of withholding permits. The bloc’s cap-and-trade program is regulated by a separate legislation on emissions trading.

EU carbon allowances for December rose 1.6 percent to 8.68 euros a metric ton as of 9:31 a.m. on the ICE Futures Europe exchange in London.

European Energy Commissioner Guenther Oettinger said yesterday that, while the set-aside amendment in the planned energy law isn’t a “direct instrument,” the EU needs to “reactivate” its carbon market after prices slumped to a record in January.

The commission originally floated the idea of withholding CO2 permits in a 2010 policy paper on climate change. It has suggested a temporary set-aside could be created from the pool of allowances scheduled to be sold to companies by national governments starting in 2013. Any eventual cancellation of permits at the end of, or during, the 2013-2020 trading phase would require a revision of the ETS law in a separate process.

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