EU Carbon Market Is at Risk of Total Collapse, Lawmaker Says

The European Union’s emissions trading system, the world’s largest, is at a risk of “total collapse” and a draft measure to fix it must become a top priority for governments, a member of the EU Parliament said.

EU carbon allowances for delivery in December sank to a record of 4.79 euros a metric ton yesterday amid oversupply triggered by an economic crisis that cut industrial output. Indecision by policy makers whether to back a rescue plan designed by the European Commission, the bloc’s regulatory arm, has pushed the cap-and-trade emissions program “to the brink”, said Bas Eickhout, a Dutch member of EU Parliament.

“This latest warning should redouble the resolve of decision-makers” to approve a proposal to delay sales of some carbon permits, Eickhout, who is a member of the Greens in the assembly, said in an e-mailed statement.

At stake is the price of EU emission allowances, which analysts at banks including UBS AG said may extend record lows unless governments support the strategy to reduce the record glut. Most member states, including Germany and the U.K., were undecided whether to back the so-called backloading measure at their last meeting in December, an EU official said at that time.

Postponing the sales of 900 million permits from 2013-2015 to 2019-2020 is not sufficient to save the market and should be followed by a deeper overhaul of the EU emissions trading system, or the ETS, according to Eickhout. It should include a permanent removal of at least 1.4 billion allowances and accelerating the pace of carbon reductions in the ETS to 2.5 percent per year from the current 1.74 percent, he said.

“Ultimately though, stepping up the EU’s outdated emissions reduction target to at least 30 percent by 2020 would be necessary to properly rescue the ETS,” he said in an e-mailed statement. “Failure to deliver a permanent solution will mean the emissions trading scheme will continue to fail in its purpose of delivering domestic emissions reductions and stimulating investment in green technologies.”

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