European Union negotiators are likely to reach an agreement today on the final shape of a carbon market reform to help curb a surplus of pollution permits, according to Bas Eickhout, who oversees the proposal for the Greens group.
Carbon futures in the world’s biggest cap-and-trade program climbed as much as 0.7 percent to near a two-month high before erasing gains. Representatives of EU governments, the European Parliament and the European Commission started a meeting at 4 p.m. in Brussels on a draft law for a market reserve aimed at boosting permit prices to levels that spur investment in clean energy.
“I think there’s a good likelihood of a deal today,” Eickhout, a Dutch member of the EU legislature, said in an interview.
The carbon reserve would automatically absorb allowances in the EU emissions trading system if the surplus exceeds a fixed limit, and release them to the market in the event of a shortage. That would ease an excess of permits that led to a 65 percent drop in the price of emissions since 2008.
EU member states decided April 29 to push for a Jan. 1, 2019, start for the market reform, two years before that originally proposed by the European Commission. That moved the states’ position closer to the European Parliament, which wants the reserve to begin by the end of 2018.
Carbon futures for delivery in December rose to as high as 7.67 euros ($8.59) per metric ton, matching the highest since Feb. 25 reached Monday on the ICE Futures Europe exchange. The contract erased gains near the close and was trading down 0.5 percent to 7.58 euros a ton at 5 p.m. in London.
The negotiating mandate by the EU Council, which represents governments, includes the transfer of withheld and unused permits to the reserve before 2020, a provision that will help contain the surplus.
The Council also agreed to temporarily exempt the extra allowances awarded to some states under the so-called solidarity provision from being included in the reserve. The exemption may last until 2030, though the date was put in brackets in the text, meaning it may be subject to a change.
“What we still need to discuss includes the compensation that some countries may get and the innovation fund,” Eickhout said.
The governments’ mandate doesn’t include a fund to develop innovative technologies, which the EU Parliament wants to create. The European Commission has said it is open to amendments to strengthen its original proposal if the Parliament and governments support them.
Latvia, which holds the EU rotating presidency, said last week it hoped that today’s negotiations will bring a deal. Any agreement will need to be confirmed by representatives of national governments and the assembly’s plenary.