Carbon Markets Threatened If EU Backload Plan Fails, CEPS Says

Europe will struggle to convince the rest of the world that carbon trading is the best way to tackle climate change if a plan to revive the price of the region’s permits fails, said the Centre for European Policy Studies.

The European Commission’s proposal to fix a glut of carbon allowances by restricting issuance must be approved, or market-based systems won’t be attractive to United Nations negotiators working on a new global climate-protection pact, Andrei Marcu, a Brussels-based adviser at CEPS, said in a Feb. 8 interview.

European nations make up most of the signatories to the Kyoto Protocol, which covers about 12 percent of the world’s emissions and is designed to curb the economic costs of climate change until 2020. Prices of EU carbon permits, the biggest emissions market by traded volume, plunged 50 percent in the past two years with the December 2013 benchmark reaching a record-low 2.81 euros ($3.76) a ton last month.

“It’s going to be tough to make the case at 1 euro a ton,” said Marcu, a former adviser at Mercuria Energy Group Holding SA and chief executive officer of the International Emission Trading Association in Geneva.

The EU is proposing to temporarily remove 900 million metric tons of carbon permits from planned auctions through 2015 and return them toward the end of the decade, a process known as backloading.

The plan “is a necessary but insufficient measure to make the market do what it was designed to do under current conditions,” Marcu said.

Swedish Endorsement

Lena Ek, Sweden’s environment minister, reiterated the nation’s support for political intervention to fix a supply glut “and prop up the too-low price which hinders the functioning of the entire system,” Erik Bratthall, a government spokesman in Stockholm, said today. The Nordic country called on EU nations including Germany to clarify their positions on the plan.

The debate on the measure has become “a test of political support” for the region’s climate-change policy, Marcu said.

The market’s rules need to be reviewed because the program isn’t achieving its environmental goals, he said.

“People deep down don’t want to accept there’s a shortage” of space in the atmosphere for additional heat-trapping gases, Marcu said. UN envoys are seeking approval for a global climate-protection agreement by the end of 2015 that will start about five years later.

The European Parliament’s environment committee is scheduled to vote on Feb. 19 on the first element of the backloading plan, an amendment to the EU emissions-trading law. The draft measure, designed by the European Commission, the EU’s regulatory arm, also requires approval by the whole assembly and by national governments.