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Carbon market debate leans towards tighter pollution cap

Date: 04-Mar-13
Country: BELGIUM
Author: Barbara Lewis

Hours of debate on reform of the European Union's Emissions Trading Scheme on Friday showed support for tighter annual pollution limits, but hardly any backing for a change to an overall EU 2020 goal on carbon cutting.

Both measures would reduce the oversupply of carbon allowances, which pushed the EU ETS to a record low of less than three euros per tonne earlier this year.

The price collapse means the ETS, a core piece of EU environment policy, is unable to engineer a shift to lower carbon energy, prompting the European Commission to propose a combination of short-term and long-term changes.

Long-term plans, debated on Friday by an audience including industry and environmentalists, include raising the EU 2020 carbon reduction goal to 30 percent from 20 percent.

"No matter how strongly I tried to force your hands, there are only very few in favor," Artur Runge-Metzger, head of international climate policy at the Commission, said. "There is not a lot of support."

Other ways of tackling the oversupply of allowances, such as permanently removing some of the surplus and bringing forward revision of a cap on how much big emitters are allowed to pollute, generated more enthusiasm.

"We are pleading to revise the linear factor before 2020 to a range of 2.3 percent," Hans ten Berge, secretary general of Eurelectric, which represents the European electricity sector, said.

Permanent removal of allowances might be needed, he added.

For now the total amount - or cap - on how much greenhouse gas big emitters can produce decreases by 1.74 percent annually.

When proposing its long and short-term measures last year, the Commission said it hoped for agreement on a temporary withdrawal of surplus allowances in time for the current phase of the carbon market (2013-2020), but the proposal has hit stiff resistance.

Member state debate has been paralyzed by the refusal of dominant EU member state Germany to take a stance and strong opposition from Poland, which is heavily dependent on carbon-intensive coal.

ONLY A MINORITY WOULD SCRAP ETS

Friday's all-day meeting was a consultation of interested parties, including representatives of member states, utilities, energy-intensive industries and green groups. There will be further consultation in April.

Around 200 written submissions to the Commission revealed a small minority believed the ETS should be scrapped, with most saying a functioning ETS was the most cost-effective way to engineer a shift towards a lower carbon energy mix.

There are, however, deep divisions over whether intervention in the market is justified and what form it should take.

Energy intensive industries, including chemicals, fertilizers and cement, echoed the Polish view that the weakness of ETS allowances reflects economic weakness and measures to drive their price higher could add to economic burdens.

In the opposite camp, environment campaigners, utilities and some academics say the lack of incentive to invest in low carbon energy augments costs and robs governments of revenue.

It also means renewable energy will require subsidies as the ETS is too cheap to force a switch towards low carbon fuel.

"There are significant negative fiscal effects. It means we have to raise the money somewhere else," Frank Convery of University College Dublin told Friday's Brussels meeting.

"We have hoped in Ireland for a price of about 30 euros a tonne. There would not be any need to subsidize (renewables, such as wind)," he said. "The downside of non-intervention is much greater than the upside."

(Editing by Jason Neely)

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