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EU Needs Stronger CO2 Market, Germany’s Reiche Says

Europe needs to strengthen its carbon program to stimulate investment in low-emission technologies after an oversupply of permits pushed prices to a record low, Germany’s deputy environment minister said.

Options to fix the European Union’s emissions trading system floated by ministers at an informal meeting this week include a move to a more ambitious carbon-reduction target for 2020 and withholding permits from the market, Katherina Reiche said in an interview during the gathering in Horsens, Denmark.

“The majority of member states share the vision that we have to react, but I don’t expect a solution today,” she said. “Without reaction, we won’t have an efficient ETS. And without it we’ll also lack funds that we need for renewable energy or efficient technologies.”

EU carbon-dioxide permits for December have declined 58 percent in the past year as an economic slowdown cut into industrial output, leading to an oversupply of allowances. The contract traded at 7.37 euros a metric ton on the ICE Futures Europe exchange in London today after falling to a record 5.99 euros on April 4.

The emissions caps that the ETS imposes on more than 12,000 facilities were set before the debt crisis and economic slump. The ETS will be oversupplied by permits covering around 1.1 billion tons of CO2 by 2012, according to Bloomberg New Energy Finance. This surplus may be transferred into the next trading phase from 2013 to 2020.

Clean Technologies

“It’s a common position that we have too many certificates in the system and that’s why we have a dramatic decline in prices,” Reiche said. “This leads to a situation where the price sends no signal to invest in energy-efficient or clean technologies.”

One option to tackle the surplus of permits could be to temporarily withhold a number of permits from the market as of 2013, a scenario originally floated by the EU’s regulatory arm in 2010. Such a set-aside could be created by delaying auctions of some allowances.

“It’s an open question of when and how many certificates,” Reiche said.

The idea of a set-aside has been criticized by Poland, which relies on coal for around 90 percent of electricity generation. The Polish government has repeatedly said it objects to “administrative meddling” with the ETS and the idea of withholding permits to prop up emission prices.

Carbon-Reduction Goals

“We should work on a solution with Poland,” Reiche said.

At the last decision-making meeting of EU environment ministers in March, Poland blocked a declaration on future carbon-reduction goals, saying it could lead to a change of the existing targets and hurt the competitiveness of the European economy amid a lack of a global climate treaty.

Reiche said the issue of Europe’s future carbon-reduction efforts and the carbon market may be discussed by the region’s leaders at a summit in Brussels later this year.

The EU is on schedule to meet its goal of cutting greenhouse-gas emissions by 20 percent in 2020. The European Commission, the bloc’s regulatory arm, said in a policy paper last year that Europe should cut emissions by 40 percent in 2030 and 60 percent in 2040 compared with 1990 levels.

“The green economy market worldwide has value of 2 trillion euros now and consultants say that in 2020 it’ll be 4 trillion,” Reiche said. “That shows its enormous potential. I think we can really be on front of this development and we can benefit from these investments. But you have to be a front-runner and not a fast follower.”

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