EU Carbon Market Needs Deep Changes, Industry Panel’s Buzek Says

The European Union should overhaul its emissions program to ensure it encourages investment in clean energy without recurrent market intervention, according to the chair of the industry committee in the EU Parliament.

Jerzy Buzek, who was elected yesterday to head the panel for 2 1/2 years, said the EU emissions-trading system has failed to stimulate a switch to low-emission technologies because of a combination of a flawed design and an economic crisis. The proposal by the European Commission to start automatic supply controls to lift the price of emission permits after a 78 percent decline over the past six years will not solve the problem, he said.

“Everyone agrees that a reform is necessary because we want the market that we created to send a price signal,” Buzek said in a phone interview from Brussels yesterday. “We need a profound change to the program and not just another tool that would in fact interfere with the market nature of the emissions-trading system.”

The cap-and-trade carbon program is the 28-nation bloc’s key tool to reduce greenhouse gases, which scientists blame for global warming. The price of emitting one ton of carbon dioxide in the system, which imposes pollution limits on around 12,000 installations owned by utilities and manufacturers, slumped to a record low of 2.46 euros in April last year amid oversupply of permits. EU allowances for December rose 2.9 percent to 5.74 euros a metric ton on the ICE Futures Europe exchange.

Supply Curbs

To alleviate a record glut of permits and help emission prices recover, the European Commission proposed in January introducing automatic supply curbs and injections. The plan to put excess allowances into a market stability reserve needs support of EU governments and the European Parliament to enter into force.

The industry panel, known as ITRE, chaired by Buzek, a former Polish prime minister and president of the EU Parliament in 2009-2012, has an advisory role on the commission’s proposal. The parliamentary work on the draft will be led by the environment committee.

“Stepping into the market is not a viable long-term solution,” said Buzek, a member of the European People’s Party in the EU assembly. “One of the options that we considered when we were designing the system was a price corridor. But that scenario was abandoned and now we can see the consequences.”

EU policy makers expected a price of about 25 euros to 30 euros when they designed the nine-year-old system, a level they said would encourage a shift to green technologies. The program requires emitters to surrender enough permits, which they get for free or buy, to cover their output of carbon dioxide. The pollution limit, which drops by 1.74 percent annually, was set before the economic and debt crisis that curbed industrial output and demand for pollution rights.

System Collapse

“We need to have a serious discussion on what caused the collapse of the system and then we have to fix the errors,” Buzek said, without elaborating. “The system does not generate impulses that would encourage green energy or clean coal technologies. The latter need to be supported especially if we recognize the global scale of the climate effect, and then shared with heavy coal users like China and India.”

The proposal to introduce the market stability reserve was presented as a part of a package on energy and climate policies for the next decade, under which the European Commission is seeking a tighter target for greenhouse-gas reductions. The bloc should accelerate the pace of cutting carbon and set a 40 percent goal for 2030 compared with 20 percent by 2020 from 1990 levels, the commission proposed.

“The proposal of 40 percent is not acceptable to many countries in a situation where we have no global climate deal,” Buzek said. “ We need to strengthen competitiveness of our industry as part of our exit strategy from the crisis. We also need to take into account the differences between particular member states. It is especially important in the light of the TTIP negotiations. ”

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