European Union governments failed to reach a breakthrough today on a rescue plan for the world’s biggest carbon market after prices of emission allowances slumped a record 40 percent yesterday, three EU officials said.
Representatives of national governments in Brussels gathered today to resume talks about a draft amendment to the EU emissions trading law that would pave a way for a separate measure to curb oversupply. Some member states said in the meeting that they were disappointed by carbon prices, which tumbled to a record low of 2.81 euros ($3.78) a metric ton yesterday, according to the officials with knowledge of the matter.
At stake is the fate of the 54 billion-euro EU emissions trading system after an excess of allowances caused by an economic crisis drove prices down as much as 91 percent from a record in April 2006. Carbon permits for delivery this year lost 5 percent to 4.11 euros a ton today on London’s ICE Futures Europe exchange. The EU system doesn’t allow any price floors or ceilings.
The strategy by the European Commission to alleviate oversupply by delaying sales of some permits divided governments, industry organizations and lawmakers, sparking questions whether the EU needs the cap-and-trade system.
Germany, which according to Trevor Sikorski, an analyst at Barclays Plc in London, holds the key to the success of the proposal, reiterated today it hasn’t adopted a position on the plan yet, according to the officials, who spoke on the condition of anonymity. Many countries also remain undecided, they said.
Poland, which relies on coal for more than 90 percent of its electricity, confirmed it will oppose the market fix, known as backloading, the officials said.
The U.K. presented some conditions for approving the rescue plan, while signaling flexibility, they said. Discussions on the legal amendment are set to continue on Feb. 20, one day after a vote on the measure in the European Parliament’s environment committee.
The final position of the German government will probably remain “a source of significant uncertainty” and may continue to weigh on market sentiment, said Itamar Orlandi, a London-based analyst at Bloomberg New Energy Finance.
“As the vote in the Parliament is likely to be tight, it is possible that the opponents inside Germany’s cabinet will not publicly signal flexibility as long as other bodies can still cause the backloading proposal to fail,” he said.
EU governments will closely watch the vote in the environment committee after the assembly’s industry panel, which has an advisory role in this legislative process, recommended rejecting the carbon market rescue plan yesterday, the officials said. Opponents of backloading in the industry committee argued that a delay of sales of 900 million carbon permits proposed by the European Commission would amount to market interference and hurt the industry’s competitiveness.
Members of the environment committee, which is leading work on the draft measure in the Parliament, proposed more than 40 amendments to the one-sentence law fix by the commission. Matthias Groote, the panel’s head who supervises the proposal in the assembly, said yesterday a compromise was possible.