EU May Decide on Carbon Reform by Mid-2015, Delbeke Says

European Union policy makers may reach a decision in the first half of next year on a proposal to strenthen the world’s biggest emissions market by curbing oversupply, according to a senior EU official.

EU governments and the European Parliament are unlikely to finish work on the reform proposed by the European Commission before the end of this year, said Jos Delbeke, director general for climate at the EU’s regulatory arm. The starting date of the overhaul is set to be one of the main sticking points after the German government today announced it will seek the beginning of supply controls in 2017, four years earlier than proposed by the commission.

The draft law aims to help prices in the cap-and-trade system rebound from near record lows.

“This year would be challenging as the Parliament has to constitute themselves after elections,” Delbeke said in an interview in Brussels yesterday. “The exact timetable depends on member states and the Parliament, but all elements should be on the table in the first half of next year.”

The stability reserve measure was proposed by the commission in January along with a strategy on climate and energy policies for 2030. The reserve aims to limit imbalances caused by an excess of permits in the emissions-trading system, which swelled to above 2.1 billion allowances last year, more than the annual pollution cap in the program, according to commission estimates. It would follow an emergency measure adopted earlier this year under which 900 million carbon permits would be delayed at auctions in 2014-2016, a process known as backloading.

Emission Credits

Coupled with an economic crisis and inflows of cheaper imported emission credits, the glut helped drive the price of EU carbon allowances to a record low of 2.46 euros a ton in April last year. The supply of permits will be reduced if there is an accumulated surplus of at least 833 million metric tons, according to the market stability reserve proposal. If the surplus fell below 400 million tons, the EU would begin returning allowances to the market from the reserve.

The draft measure, which would introduce automatic supply curbs or injections starting in 2021, has divided EU governments. Germany agreed that it would seek to bring the start of the reform forward to prevent the 900 million backloaded allowances from returning to the market, Environment Minister Barbara Hendricks said today.

German Proposal

“The federal government has come to the position that we already want reform of the ETS by 2017,” Hendricks told reporters in Luxembourg, saying the German proposal would not alter the ETS target for 2020. “We want to definitely cancel those certificates because otherwise the situation would be that they come to the market in 2017.”

The U.K. and Denmark have also signalled that they would back an early start of the reserve. Poland, which relies on coal for about 90 percent of its electricity production, has opposed any market intervention and said talks about reforming the ETS should be conducted as a part of discussion about post-2020 policies. EU leaders aim to reach an agreement on the 2030 climate and energy framework in October, paving the way for the commission to propose detailed legislation on how to reach the goals.

An early start of the reserve would require an amendment to that effect backed by a qualified majority of 260 out of 352 government votes in the EU Council and a simple majority in the European Parliament. The commission would then need to announce whether it approves such a change, Delbeke said. Under the EU law a negative commission verdict could be overturned by a unanimous decision by governments.

Too Early

The German proposal has been presented only today and it’s too early to say how other member states will respond to it, EU Climate Commissioner Connie Hedegaard told a press conference in Luxembourg after a quarterly meeting of the bloc’s environment ministers.

“We went through with the backloading exercise and the commission is being careful not to present anything that anybody could see as doing something retroactively vis-a-vis 2020,” she said. “But it also goes without saying that if there should be appetite among member states to do things early on that’s something we’d find interesting.”

The ETS, started in 2005, imposes decreasing pollution caps on about 12,000 installations owned by power producers and manufacturers including EON SE and ThyssenKrupp AG. Each year they must surrender enough permits, which they get for free or must buy at auctions, to account for their discharges or pay fines amounting to 100 euros ($135) a ton. Emission permits for December rose as much as 3 percent to 5.56 euros on the ICE Futures Europe exchange in London today.

Possible Timing

The Parliament is yet to decide whether to resume talks on the measure in July, the first possible timing after elections in May, or whether to schedule them for September, after its summer recess in August. In one of the first steps in the work on the proposal, the assembly will need to choose a new rapporteur, or a member that would oversee the draft law. The previous rapporteur, French member of the European People’s Party Sophie Auconie, was not re-elected.

The environment committee, which leads work on climate-related laws in the Parliament, will then draft a report on the proposal and its members will have the right to propose amendments. Once such a report has been approved in a vote, the committee may opt to mandate the rapporteur to start the so-called trilogue, or informal talks with governments on a compromise version of the proposal.

Parallel Process

EU nations will seek to define their position on the proposal in a parallel process. Representatives of national governments already had initial discussions on the draft in April and will next meet on the matter on June 16. They need to reach an agreement on the draft before the trilogue can start.

The procedure in which the measure is considered, known as co-decision, typically takes between a year and two years from the moment the law is proposed until it becomes binding. A one-sentence amendment to the EU emissions-trading law proposed in July 2012 to enable some carbon-permit auction delays took EU policy-makers 12 months to approve.

“Some member states would like to advance the dates, many chief executive officers also express their support, but for it to happen there needs to be qualified majority in the Council,” Delbeke said. “The decision is in the hands of governments and the Parliament. If both decide to support an early start the commission will not object.”