Belet Seeks Transfer of Delayed EU CO2 Permits to Reserve

The European Union’s proposed carbon-market stability reserve needs to prevent suspended emission rights from returning to the market at the end of the decade, according to Ivo Belet, the lead lawmaker on the plan.

Belet, responsible for guiding the carbon fix through the European Parliament, wants the European Commission’s draft amended to avoid the return of 900 million permits withheld from government sales in 2014-16, he said today in an interview. He’s also seeking a provision to protect energy-intensive industries against the risk of moving to regions without pollution curbs.

The commission proposed the fix in January, after an excess of permits in the EU’s emissions trading system grew to more than 2.1 billion allowances last year, more than the annual pollution cap in the program. The stability reserve, which would create automatic supply controls, needs national government and European Parliament support to be adopted or changed.

“I think it’s in the interest of all stakeholders to have clarity on the market stability reserve as soon as possible,” Belet said in Brussels. “That’s why I see my role as an honest broker, a moderate mediator.”

The stability reserve, due to start in 2021, would follow the emergency measure adopted earlier this year to temporarily withhold some permits from auction and return them 2019-20, a process known as backloading. It would be “illogical” if backloaded allowances were to return to the market only to be placed in the reserve again, Belet said in his draft report obtained by Bloomberg News.

EU emission permits for delivery in December have climbed 40 percent this year. The contracts rose 4.5 percent to 6.92 euros ($8.62) a metric ton on the ICE Futures Europe exchange in London.

Reserve Start

Belet didn’t propose changing the starting date for the reserve mechanism in his draft, which members of the European Parliament environment committee will discuss on Dec. 3. They will also have the right to propose their own amendments before the panel votes on Feb. 24 on its position for negotiations with EU governments.

“I’m certainly not against an early start but I think it’s better to go for as broad a platform as possible within the Parliament,” Belet said. “I look forward to further amendments that will be tabled by my colleagues and on the basis of that we will try to find a solution. The outcome of that could be an early start.”

The environment committee, or ENVI, will also take into consideration a non-binding opinion by the industry committee, known as ITRE, which is due to be adopted on Jan. 21. Its member Antonio Tajani proposed earlier this month changing supply control thresholds in the reserve and requested safeguards to prevent negative impacts from the planned market fix on industry.

Carbon Leakage

Belet acknowledged the need for certainty that companies prone to moving production to regions without emission curbs will remain protected after 2020. One of his amendments is to oblige the commission to present within six months after the entry of the stability reserve in force a proposal on carbon-leakage provision post-2020, he said.

He also proposed setting aside a proportion of allowances in the reserve to be used for investment “in low carbon industrial technology and processes.”

In a parallel process, member states seek to agree on their stance on the market stability reserve, with Germany and the U.K. leading the push for bringing the mechanism forward to 2017. Climate experts from national governments were due to meet on the draft measure today and continue talks next week.

Supply Control

Under the commission’s proposal, the supply of permits will be reduced or increased depending on the size of an accumulated surplus.

Where supply conditions are met, starting in 2021, 12 percent of permits in circulation in the previous year should be transferred into or from the reserve, according to Belet. That compares with the commission’s draft, which proposed using permits in circulation two years earlier.

The proposal’s timeline depends on whether the environment committee in February adopts a mandate for direct negotiations with governments or whether a plenary decision is needed, potentially extending the process by one or two months, he said.

“I hope first reading is possible,” Belet said. “But I don’t want to push or pressure anyone.”

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