EU’s Delbeke Backs Tighter Carbon Supply Over Price Floor

  • European Commission looking at options to address oversupply
  • Commission won’t endorse direct price regulation, Delbeke says

The European Commission will not support a proposal to introduce a price floor or corridor in Europe’s emissions market and prefers supply controls to strengthen the system, according to senior European Union official Jos Delbeke.

The EU’s 28 national governments and the European Parliament are discussing a reform of the bloc’s Emissions Trading System to adjust it to stricter pollution-reduction goals for 2030. As a part of the review, France is pushing for a minimum price to boost prices the cap-and-trade program after they sank almost 80 percent in the past eight years.

“We would not be in favor of a price corridor or a minimum price,” Delbeke, the commission’s director general for climate, said in an interview in Brussels on Wednesday. “The ETS is a market instrument. We have to find a balanced market; but if we’re going to regulate prices directly, we may have all kinds of side effects that are not worth striving for.”

The European emissions market, the world’s biggest, imposes decreasing pollution limits at more than 11,000 installations owned by utilities and manufacturers and has no price floors or ceilings. Allowances for delivery in December were at 6.11 euros a metric ton at the ICE Futures Europe exchange in London on Thursday, down 26 percent this year amid a persisting surplus of permits. Each permit covers 1 metric ton of carbon dioxide.

A change to the EU emissions market law would need endorsement by the European Commission, qualified-majority support from national governments in the Council of the EU and majority backing from the European Parliament. The French proposal reheated a discussion about prices in the cap-and-trade program and other nations may come up with their own ideas in the political debate, Delbeke said.

Price Proposal

“We know that economic growth is very low and we know that the surplus in the market is bigger than anyone would have thought,” Delbeke said. “We’re of course following closely what is happening on the market and I’m sure that in the legislative discussions in the Parliament and in the Council, now with France coming with their direct price proposal, there’s going to be more reflection on that.”

The carbon floor idea promoted by France, where 73 percent of electricity comes from emissions-free power plants, attracted little support from other EU member states. The German emissions trading authority DEHST, a unit of the environment ministry, chimed with the European Commission, recommending tightening the supply of carbon permits rather than imposing price floor. The EU should consider stricter climate goals, a faster pace of pollution reductions in the carbon market and permanent withdrawal of allowances under the post-2020 reform of the ETS, DEHST deputy head Juergen Landgrebe.

“Massive surpluses in emissions certificates mean that there’s hardly an impulse to reduce CO2 right now,” Landgrebe said in a written statement to Bloomberg News on Wednesday.

To reduce the glut of carbon allowances, aggravated by an economic slowdown that cut industrial output, the EU decided last year to implement starting in 2019 the Market Stability Reserve, a mechanism that would automatically control the supply of permits to pollute. It will automatically absorb allowances in the EU cap-and-trade program if the surplus exceeds a fixed limit, and release them to the market in the event of a shortage.

Post-2020 Reform

The carbon market could be further strengthened as a part of the post-2020 reform by building on the effects of the MSR, according to Delbeke. That means policy makers should opt for “quantity-inspired regulation” rather than setting price levels, he said.

“There are certain steps that can be taken on the supply side, but it’s too early to go into that now,” Delbeke said. “There are several options. We have the MSR; it’s a reserve. The reserve can become bigger or smaller. The reserve can be permanent or temporary. These are all things that one can envisage and we’re looking at all options addressing the problem of oversupply,” he said.

Delbeke also said policy makers may consider ways to avoid aggravating the surplus when selling more than 700 million allowances after 2020 from two special funds aimed at fostering innovative investments in clean energy and at modernization of energy systems in lower-income member states.

Three of the largest Nordic utilities, Fortum Oyj, Statkraft AS and Vattenfall AB, called earlier this month on the EU not to sell around 400 million allowances from the Innovation Fund before 2023 to minimize market distortion.

“Ideas are maturing on things like monetizing permits from the modernization and innovation funds,” Delbeke said. “I saw the paper from three Baltic companies that said perhaps we can monetize the innovation fund allowances later. These are things that are worth exploring in order to have a balance between supply and demand restored in the market.”

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