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26th Aug 2019

Brussels moves to tackle slumped carbon market

  • The EU commission has itself been divided on the backloading proposal (Photo: EUobserver)

The European Commission on Wednesday (25 July) announced short-term plans to bolster the carbon Emissions Trading Scheme, its flagship environment project undermined by rock bottom carbon prices.

The scheme, which allows companies to buy and trade pollution allowances, has suffered from an over-allocation of allowances compounded by the economic downturn and drop in manufacturing output.

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In April carbon prices dropped to their lowest level - €5.99 - since trading started in 2005. They are currently trading at around €7.00 down from a high of €20 in 2008.

"The EU ETS has a growing surplus of allowances built up over the last few years,” Climate Commissioner Connie Hedegaard said. “It is not wise to deliberately continue to flood a market that is already oversupplied.”

She has proposed delaying the sales of new allowances – known as backloading - in the next phase of the scheme, starting in 2013.

There are no firm proposals in Wednesday’s plans on how many allowances should be withdrawn from sale, but the commission’s own analysis mentions 400 million, 900 million or 1.2 billion of them.

MEPs have called for 1.4bn allowances to be withdrawn permanently – a number supported by industry, including giants Shell and GDF Suez.

“This re-profiling of the auctioning calendar should, at a minimum, reflect the European Parliament Environment Committee’s position calling for the withdrawal of 1.4 billion ETS Allowances,” they said in a statement on Wednesday along with nine other companies.

But the lack of specific figures in the Wednesday’s proposal reflects internal wrangling in the commission. The industry directorate general has been pushing for an impact assessment to be carried out first. Industry organization BusinessEurope last month warned in a letter to the commission that changing the auctioning schedule could hurt companies, already under strain due to the economic crisis.

The disagreement has meant that the commission will now only publish suggest specific figures as well as long term structural changes to the ETS system after the summer recess.

This leaves a tight window to get the proposed change in allowances through parliament and member states before the new auctioning phase in 2013.

“Despite the urgent need to repair the misfiring emissions trading scheme, the Commission is tiptoeing towards action,” said Dutch Green MEP Bas Eickhout.

The commission says it can be done if there is "political will." "It is up to the European Parliament and Member States to deliver," said Hedegaard.

But the issue is controversial among member states too.

“When the rules of the next phase of the ETS were negotiated in 2008 it was agreed that it will be a market mechanism,” Polish environment minister Marcin Korolec told Bloomberg earlier this month.

“Let’s stick to this rule. Backloading would be aimed at eventually tightening the emissions target and that’s not a move Poland could back,” he added.

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