EU Says Carbon Auctions Review Won’t Reduce Amount of Permits

The planned review of European Union’s carbon-permit auctioning regulation would change the timing of sales, while keeping intact the amount of allowances to be sold in the next trading period from 2013, the EU said.

EU Climate Commissioner Connie Hedegaard announced last week that the bloc’s regulatory arm plans to propose a revision of the rules on auctioning carbon permits to be enacted before the end of this year. The measure would help curb an oversupply of allowances and could bolster prices by delaying sales of some permits to companies in the EU emissions trading system.

“This short-term measure is an option that does not affect the total amount of allowances being auctioned in 2013 to 2020, but rather addresses the time when these allowances are auctioned,” Isaac Valero-Ladron, climate spokesman for the European Commission, said by e-mail today.

The oversupply of carbon allowances, stemming from a recession that cut into industrial output, drove prices in the world’s biggest greenhouse-gas market to a record low earlier this month. The EU is moving toward auctioning allowances in the next phase of the emissions trading system, or ETS, after giving most of them to companies for free since 2005.

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

“Good Housekeeping”

Under the current EU rules, the amount of allowances to be auctioned to companies is bigger at the beginning of the next trading period of the ETS, known as Phase 3, and this pattern that may need a change, according to Hedegaard.

Given the economic situation and the need for the market to absorb a “large amount” of auctioned allowances, a review of the auctioning profile is a measure of “good housekeeping,” Valero-Ladron said today.

“It simply does not make sense to auction so many allowances in the early years of Phase 3 and relatively fewer allowances at the end of Phase 3, when our economy and the carbon price will have recovered,” he said.

The commission is first planning to bring forward by a year an annual report on the ETS that the bloc’s law requires to be presented in 2013, according to Hedegaard. It will be a “golden opportunity” to look into the auctioning regulation, she said last week.

The planned changes to the auctioning rules would be subject to the so-called comitology procedure, in which a measure proposed by the commission needs qualified-majority support from representatives of national governments to pass. The process, which also involves scrutiny by the European Parliament and ministers, typically takes about five months.

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