EU Lawmakers Urge Cut of at Least 1.4 Billion CO2 Permits

Three European Union lawmakers have urged the European Commission to withhold at least 1.4 billion emission permits from the bloc’s carbon-trading system to help boost prices, according to a letter obtained by Bloomberg News.

The removal would apply to emissions permits due to be auctioned from 2013, and is at least 17 percent more than the range proposed by the European Commission in a draft report. The letter was addressed to commission president Jose Manuel Barroso, climate commissioner Connie Hedegaard and commission secretary-general Catherine Day.

Chris Davies, Bas Eickhout and Linda McAvan, members of the EU Parliament’s Environment Committee, said in the letter dated today that they look forward to “an immediate, effective and significant intervention that restores the EU Emissions Trading System to the stringency that all the EU institutions agreed in 2008 and removes at least 1.4 billion allowances from auctioning.”

Not only does the bloc need to remove the higher number of allowances from the system, it needs to remove them permanently, Eickhout said today in a phone interview from Rio de Janeiro. “Backloading is OK, but it really needs to be taken out of the system.” Otherwise the intervention won’t move prices above about 20 euros a ton, where they need to be, he said.

Eickhout is a member of the Green group in the parliament, while Davies is a Liberal Democrat. McAvan is a member of the Social Democrats bloc in the EU parliament.

Three Scenarios

The commission may propose delaying the sale of as many as 1.2 billion carbon allowances from 2013, according to a draft report on the outlook for its emissions-trading program, two people with knowledge of the matter said June 15.

The 27-nation EU’s regulatory arm sketched out three scenarios to temporarily curb the oversupply in the draft report, the people said, declining to be identified because talks on the document are confidential. The two other options are withholding 400 million or 900 million permits in the three years through 2015, they said.

The revision of the auction regulation will be done in the so-called comitology procedure, in which a measure proposed by the commission needs qualified-majority support from representatives of national governments in the Climate Change Committee to pass. It then becomes subject to three months of scrutiny by the parliament and ministers, and is officially adopted unless member states or the assembly voice objections.

‘Probable Compromise’

Regulators will probably compromise and propose temporarily removing 700 million tons of carbon permits from supplies after 2012, 500 million less than the total preferred by the commission, said Barclays Plc.

The price of permits may rise to about 12 euros next year under that scenario, compared with about 15 euros if 1.2 billion tons were to be removed, Trevor Sikorski, an analyst in London at the bank, said today in an e-mailed research note. They rose 0.7 percent today to 7.37 euros a ton on the ICE Futures Europe exchange in London as of 4:49 p.m.

With Poland against intervention in the carbon market, the 400 million ton or 900 million ton options are more probable than 1.2 billion, Matt Gray, an analyst for Jefferies Bache Ltd. in London, said today in an e-mailed research note.