EU moves to shore up price of carbon permits in the ETS

The EU has moved to shore up the faltering price of CO2 emissions in the ETS as current low price is failing to encourage companies to reduce their greenhouse gas output. However, the changes are relatively minor, too minor to do much good, resulting in changes in the timings of auctions of carbon permits, rather than the large-scale reforms that campaigners and green businesses had urged. The current carbon price is about €7 (£5.40) per tonne of carbon, which is well below the price of €25-40 per tonne that analysts say is needed to encourage companies to change their behaviour. The price is so low due to the recession and lelss economic activity in the EU so there is a glut of excess permits.Some companies will be able to avoid paying for carbon for years to come. Sandbag says that 2.2bn allowances need to be removed to restore the scarcity envisaged before the recession.


EU moves to shore up price of carbon emissions

Changes to emissions trading scheme are not the large-scale reforms that campaigners and green businesses had urged

by Fiona Harvey, environment correspondent (

The European Union moved to shore up the faltering price of carbon dioxide emissions on Wednesday, amid widespread concern that the current low price is failing to encourage companies to reduce their greenhouse gas output.

But the changes announced to the emissions trading scheme are relatively minor, resulting in changes in the timings of auctions of carbon permits, rather than the large-scale reforms that campaigners and green businesses had urged.

The current carbon price stands at about €7 (£5.40) per tonne of carbon, which is well below the price of €25-40 per tonne that analysts say is needed to encourage companies to change their behaviour. After the proposals were announced on Wednesday morning, the price of carbon dipped to €6.70, in an indication that analysts had been expecting bigger changes.

As Europe‘s economic activity has slumped in the past few years, the number of carbon permits available to companies for free has heavily outstripped the number they need. Many companies have been hoarding the permits they receive for free, with some now sitting on billions of euros’ worth of carbon allowances that will let them evade paying a price for their emissions for years.

Connie Hedegaard, climate chief at the European commission, said: “The EU [carbon market] has a growing surplus of allowances built up over the last few years. It is not wise to deliberately continue to flood a market that is already oversupplied. This is why the commission today has paved the way for changing the timing of when allowances are auctioned. This short-term measure will improve the functioning of the market.”

Even this modest step is not certain to be put into practice, however, as member states and MEPs must agree first, so that the changes can come into force early in 2013. Hedegaard promised that further, more sweeping reforms would be examined: “After the summer recess, the commission will also finalise the options for long-term structural measures.”

The changes to the carbon market have been the subject of a growing row between Hedegaard and her counterpart in the commission, the energy chief Günther Oettinger. The two have a history of disagreements, and Oettinger is understood to object to big reforms to the way the carbon market operates. The most effective way to raise the price of carbon under the scheme would be to reduce the number of permits available, and the easiest way to do this would be to cut the allocation of future permits scheduled for the next few years, by setting aside a large number. However, this would be legally and politically complex so the compromise proposed would allow for gradual changes that would not amount to a full set aside yet.

Bas Eickhout, a prominent Green party MEP, said the proposals did not go far enough: “Despite the urgent need to repair the misfiring emissions trading scheme, the commission is tiptoeing towards action. The emissions trading scheme is in need of serious surgery to address the current problems with the carbon market and ensure it can fulfil its purpose of delivering emissions reductions in the EU. Regrettably, the commission is riven by internal wrangling and has only set out limited proposals on the legal base today, merely preparing the ground for future steps and making it more difficult to shore up the emissions trading scheme before the end of the year.”

Damien Morris, senior policy adviser at Sandbag, an environmental campaigning group, said it was “unfortunate” that the plans to change the auctions were delayed until next year, but said that legal changes proposed by the commission would be helpful in reducing the number of permits available. He said: “With a clearer legal mandate, we hope the commission will move to withhold a quantity of allowances commensurate with the crisis facing the scheme: our research finds that 2.2bn allowances need to be removed to restore the scarcity envisaged before the recession.”

Scott McGregor, chief executive of emissions trader Camco, said: “It is essential that the proposed stakeholder consultation leads to firm proposals from the European commission on long-term structural measures to improve the scheme and which remove the uncertainty currently affecting the market.”

In the UK, the commission’s moves are likely to have limited impact, as the UK government is taking steps to ensure companies pay an effective minimum price for carbon whatever the EU price. Dorothy Thompson, chief executive of Drax, the coal-fired power station that is the UK’s biggest single source of emissions, said: “Because of the carbon floor price, any material amendments to the EU emissions trading scheme that tighten up the market do not make much difference here.”



EU Commission to announce carbon market rescue plan

By Barbara Lewis

Jul 25, 2012

BRUSSELS (Reuters) – The European Commission will outline a keenly-awaited plan on Wednesday to bolster the Emissions Trading Scheme (ETS) by reducing a massive burden of surplus allowances.

It is the latest of a string of efforts to fix a market, which is designed to be the mainstay of the EU’s climate policy, but in the past has been undermined by a series of scams and now is flooded with oversupply because of recession.

In April the price of carbon fell to a record low of 5.99 euros a tonne, far below levels needed to spur low-carbon investment and discourage polluters.

Early on Wednesday, the market was around 7 euros.

To tackle the surplus of carbon allowances, the Commission, the EU’s executive arm, has decided on a series of steps.

It is seeking clarification of an article governing the timetabling of auctions within the European Union’s ETS law. It is also making public a draft proposal on how to alter the auction timetable to delay the release of new allowances.

There will be no firm numbers in that draft proposal itself, although EU sources said debate had focused on withdrawing 400 million, 900 million or 1.2 billion allowances.

Environmental groups have made the case for 2 billion.

The aim of the timetable adjustment is to deliver a quick fix in time for the next phase of the ETS, beginning next year, while the legal clarification is an attempt to ward off any challenge that could derail the process.

Eurelectric, which represents the electricity industry, including giants such as E.ON (EONGn.DE), said it would welcome a first move from the Commission to “clarify the feasibility of a rapid, short-term adjustment”.

Other sections of industry are less favourable.

Europia, the European Petroleum Industry Association, said it opposed intervention.

“The EU ETS is responding to the economic conditions in Europe and therefore working as designed,” it said. “In addition, Europia has concerns as to the regulatory precedent that such an intervention would set.”


Whether the European Union can deliver a short-term solution over the coming months depends on the political will of its 27 nations, which have to endorse Commission proposals.

The prime EU opponent is Poland, which is dependent on carbon-intensive coal. Grateful for the economic reprieve provided by a weak carbon price, it opposes any intervention.

“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,” Polish Environment Minister Marcin Korolec told Reuters earlier this month.

By contrast, the biggest EU economy Germany, as well as Britain, are viewed as obvious supporters.

Britain has decided on a carbon floor price from next year and Germany needs ETS revenues to finance its shift to renewable power following its decision to withdraw from nuclear energy after Japan‘s Fukushima disaster in March 2011.

Debate will begin in earnest after the Commission’s August recess during which the EU institutions suspend business.

The Commission later this year is expected to publish a review of the ETS, which is being brought forward from next year.

That could also kick off a much deeper debate about the wider reforms many see as necessary, such as permanently withdrawing, rather than just delaying the release of permits.

The problem with more far-reaching reforms is that under complex EU processes, they could take years rather than months.

(Additional reporting by Nina Chestney and Jeff Coelho in London; editing by Rex Merrifield and Keiron Henderson)



The aviation industry, especially airlines abroad, have complained mightily about the cost of the ETS.  Back in December, IATA estimated the cost could be as much as €900 million  in 2012, based on an average price of €13 per tonne, rising to €20 or much higher in 2020.  In practice, the cost is now only €7 per tonne, so the actual cost to a passenger on a flight from the USA to Europe is just about €2 – 3 per flight.

Such low carbon prices are ineffective in being a disincentive to flying, as the prices are too low by at least one or two orders of magnitude.

For example, see



CERs (certified emissions reductions) are credits issued by the United Nations for reductions in emissions generated by emissions abatement projects in developing countries. ERUs (emissions reductions units) are also emission reduction credits issued by the UN but they represent reductions from projects in industrialised countries. One CER or ERU represents a reduction of 1 tonne of CO2 and can thus be surrendered by an aircraft operator to offset 1 tonne of its emissions. However, operators can only use CERs and ERUs for up to 15% of their compliance obligations in 2012 and up to 1.5% from 2013.