EU Starts 5 Battles to Resuscitate CO2 Market, SocGen Says

The European Union, already facing criticism after expanding carbon trading this year to airlines, has opened five battlegrounds in its bid to resuscitate its flagging market, according to Societe Generale SA.

“It’s very clear their primary goal is to increase prices,” Emmanuel Fages, an analyst in Paris for the bank, said today by phone. “It’s the result of their political ambition.”

EU permits today rose to the highest in a month after Climate Commissioner Connie Hedegaard said yesterday the bloc may propose a delay in supply at carbon auctions starting next year. Lawmakers would also continue to consider another plan to temporarily cut supply, known as a set-aside, she told reporters in Horsens, Denmark.

There are three other policy initiatives that could also boost prices, Fages said. The bloc is considering installing a 2030 target for the first time, tightening its 2020 target and even expanding the market to include cars and trucks. The bloc should consider expanding its emissions trading system to cover the region’s transport industry and shouldn’t judge the effectiveness of the program by a decline in carbon-permit prices, Poland said in a report this month obtained by Bloomberg News.

“I’m surprised Poland put on the table” since it has argued against the set-aside, Fages said. “Maybe that’s a way to show they have proposals and are not always blocking things.”

Permits for delivery in December were little changed today at 7.47 euros ($9.90) a metric ton on the ICE Futures Europe exchange in London at 3:49 p.m. They earlier rose to 7.64 euros, their highest level in a month, after reaching a record low of 5.99 euros on April 4.

‘Market Manipulation’

Poland, which gets about 90 percent of its electricity from coal, yesterday upheld its objection to any measures that are aimed at boosting the price of EU carbon allowances, saying they would amount to “market manipulation.”

“My first reaction is that I’m skeptical,” Environment Minister Marcin Korolec said yesterday in an interview. “We’d need to see the details of such a proposal.”

The commission’s plan is the first step in a process to strengthen the ETS and the EU will continue to explore “longer-term structural issues,” including the set-aside of carbon allowances, or withholding a number of permits from the market, Hedegaard said.

“It goes without saying that when you change the auctioning profile then you’re not flooding the market with as many allowances early next year as is the case if you’re not changing that,” Hedegaard said. “What we have been looking into at the commission is whether there’s anything we can do more or less right away.” She didn’t detail how the change to auctions would differ from the set-aside.

Canceling Allowances

Europe may struggle to put in place any carbon market intervention at all if it can’t achieve a temporary delay in volumes sold in auctions, Trevor Sikorski, an analyst for Barclays Plc in London, said yesterday by phone. The set-aside would “lay the foundation for a future cap change” because it provides a pool of allowances that the bloc can cancel, he said.

The EU still must overcome resistance from some nations to measures that tighten the market, said Jan Pravda, director of Prague-based Pravda Capital Trading.

“While this announcement sounds strong, I don’t see how it can really influence the prices in the near term because it is still a far cry from a real set-aside,” he said. The chance of driving prices higher appears “fragile,” he said.

With some success at tightening, permits may rise to 10 euros a ton by the end of the year, Fages said.

The inclusion of flights to and from EU airports in the European carbon cap-and-trade program triggered opposition from countries including China, the U.S. and Russia, which said Europe should let the United Nations’ International Civil Aviation Organization decide on greenhouse-gas limits for the industry.

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