Quick fix to EU carbon scheme expected in weeks
Author: Barbara Lewis and Jeff Coelho
Smoke billows from a factory during sunset in the northern Spanish town of Torrelavega.
Photo: Victor Fraile
A planned quick fix to the European Union's Emissions Trading Scheme is expected to emerge over the coming weeks as a first step to the deeper reforms urgently sought by environmental and some business campaigners.
The European Commission has yet to confirm the date when it will publish details of a review of the EU ETS, including delaying the auction of some allowances to reduce a huge surplus that has kicked carbon prices down to record lows.
It has said only that the intention is to release them before the EU institutions' summer break in August and has declined to comment on speculation that they will not be published until September.
The benchmark carbon price fell to a low of 5.99 euros per tonne in April. It has since recovered to around 8 euros, partly because of expectations the Commission will act to support it.
The carbon price needs to be in the 18-20 euro range for it to start spurring low-carbon investment, Mark Owen-Lloyd, head of carbon trading at CF Partners in London, said.
"You've got to get the price out of the 6 to 8 euro zone; otherwise it's just a play thing for traders," he said.
The Commission has declined to discuss the details until they have been published, but EU sources have said up to 1.2 billion allowances could be held back at the start of the next phase of the ETS, beginning in 2013, in a process known as backloading.
Many carbon market analysts expect an EC proposal to call for around 700 million carbon permits to be backloaded, but the allowances would eventually need to be removed permanently, not just delayed, to ensure carbon prices stay above 10 euros.
Deeper structural reforms could also include tightening the cap on how much carbon dioxide polluters can emit.
"Backloading is a way to kickstart a bigger process. In and of itself, its value is mainly as a signal that action is being taken," Jesse Scott, head of Eurelectric's environment and sustainable development unit, said.
In EU terms, the benefit of an auction timetable review is that it is a small enough change to avoid a long, complicated EU process - and in theory heated debate.
Poland has consistently been the most outspoken critic of action to push up the carbon price, but on its own would not be able to block the fast-track EU process for relatively minor legal changes.
Even if publication were delayed until September, there could be time to get committee approval from member states before the end of the year.
Polish Environment Minister Marcin Korolec said any reforms, including an auction review, should be accompanied by an assessment of their impact.
"What are the goals of the ETS? The goal is to reduce CO2 emissions. Nothing has changed. The ETS was never invented to create a price signal," Korolec told Reuters on the sidelines of EU environment talks in Nicosia at the weekend.
"The fact that we will deliver our political goals cheaper is a reason we should be happy."
Poland relies on coal for almost all its electricity and is concerned about the economic implications of anything to raise the carbon price.
"We have to manage the transition from economic crisis to recovery. The challenge of the crisis is immediate," Korolec said.
Cyprus, current holder of the EU presidency, has made it a priority to prepare for the international climate change talks in Doha later this year.
It has said a small-scale fix is the only realistic option for now, in part because it is worried deeper debate could divide the EU while it seeks to lead efforts to build on a fragile deal forged last year to keep the Kyoto climate change pact alive.
"It's unrealistic at this stage. The political agreement is not there," Sofoclis Aletraris, Cyprus agriculture and environment minister, said of more sweeping ETS changes. "It is wiser to see what is in the review.
The Cyprus EU presidency has said it will work with Poland to try to overcome its opposition to a more ambitious target on cutting carbon dioxide emissions, which would also have the effect of reducing the amount of carbon allowances.
Asked about whether it was willing to show any flexibility, Korolec said only that Poland had already more than met its own target for cutting emissions.
Cyprus' nervousness about opening a rift with Poland and any allies it can muster recalls the previous Danish presidency's reluctance to entangle the ETS debate with one of its priorities, which was getting a deal on energy efficiency.
A parliamentary committee is expected on Thursday in Brussels to vote on the energy efficiency law. That vote should be a formality following last month's political agreement.
Tagged on to the end of the law is a pledge the Commission will take action to support the ETS.
(The story corrects low carbon price to 5.99 euros in 4th paragraph.)
(Editing by Jane Baird and Alison Birrane)