EU Commission’s Carbon Disclosure Draws Fire as Prices Fall

A lobby group representing traders from Royal Dutch Shell Plc to BNP Paribas criticized the quality of disclosure by the European Commission in Brussels when proposing rule changes to its carbon market.

A draft plan from October that would have banned traders from holding Russian Emission Reduction Units issued after 2012 was revised Jan. 10 after market participants showed the regulator the proposal wasn’t workable, Sarah Deblock, European Union policy director at the Geneva-based International Emissions Trading Association, said today in an interview.

“The messages that came out were inconsistent,” Deblock said by phone. “Stakeholders have had a good chance to express their concerns.”

The European Commission is seeking to tighten the market’s supply glut as a new phase begins this year. This month’s revision, which is scheduled for a vote by member states on Jan. 23, allows the credits to be held through March 2015, as long as they represent greenhouse gas cuts made before 2013. ERUs for December plunged 90 percent to 15 euro cents ($0.20) a metric ton since the initial proposal was discussed by policy makers on Oct. 17. EU permits dropped 35 percent in the same period.

The lobby group today published a letter sent to Yvon Slingenberg and Peter Zapfel, two officials in the climate-action unit of the commission who help oversee the market.

Kyoto Extension

“The EU needs to restore confidence in the emissions trading system, and any changes to existing rules need to be presented in a transparent and predictable manner,” Deblock wrote in the letter.

A commission official, who asked not to be named, citing policy, declined to comment.

The regulator is seeking to adjust the rules of its own program after United Nations envoys decided Dec. 11 to extend the 1997 Kyoto Protocol through 2020, including the Joint Implementation program that generates ERUs. Kyoto’s emission-reduction targets would otherwise have finished last year. Russia has decided not to participate in the agreement’s second phase.

The commission sometimes publishes draft plans in an understandable effort to prevent leaks during consultation periods, Deblock said.

EU carbon permits for December dropped 6.9 percent today to a record 5.65 euros a ton on the ICE Futures Europe exchange in London.

Aviation Rules

Deblock criticized the commission’s plan to stop traders converting aviation carbon allowances from the phase ending last year to permits that can be used by utilities and factories in the current phase.

“It’s true there has been no consultation and no impact statement,” she said in the interview. The rule changes were “particularly concerning” because they will apply with no period of transition, she said in the letter.

The commission wants EU governments and the European Parliament to adopt by early this year its plan to freeze for a year carbon curbs on flights into and out of EU airports. International flights will now be exempted from EU emissions-trading rules for 2012 under the draft decision published Nov. 20 on the EU website.

The commission should have better explained why it needed to make such late changes to the aviation-allowances conversion rules, which previously were “well established,” Deblock said.

Original Intention

The U.K. said Oct. 22 it may seek to adjust the rule that allowed buyers of EU aviation-only carbon allowances for conversion.

“We are aware that the registry regulation appears to permit Phase 2 EU aviation allowances to be converted into ordinary Phase 3 allowances,” the Department of Energy and Climate Change said at the time. That wasn’t the original intention, the department said.

EU carbon traders are worried they are exposed to further “discretionary regulatory changes,” Deblock said.

“IETA urges the commission to be as open as possible to explain the policy intention and the legal meaning behind the amendments as well as the expected consequences for market operators,” she said in her letter.

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