EU carbon market needs quick fix and deep reform -Commission

Wed Nov 14, 2012 11:00am GMT

Related Topics

* Withdrawal of 900 mln permits should limit volatility

* Commission outlines six plans for deeper reform

* Long-term fix could take years, backloading can be quick

BRUSSELS, Nov 14 (Reuters) - The EU carbon market must have clarity before the year-end on a short-term plan to revive a scheme that has lost its power to drive greener energy, the European Union's climate boss said on Wednesday, as she outlined plans for much deeper reform.

The Commission proposed on Monday to defer the auction of 900 million allowances that would have been sold between 2013 and 2015, the first three years of the next phase of the EU Emissions Trading Scheme (ETS).

In a process known as backloading, they would instead be auctioned at the end of the phase, in 2019-2020, to tackle a glut of allowances caused by the economic slowdown in Europe.

"Market operators must have clarity before year-end on this," European Climate Commissioner Connie Hedegaard said in a statement.

"At the same time, the Commission presents options for possible structural measures that can provide a sustainable solution to the surplus in the longer term."

The temporary solution in theory is relatively quick and easy, in line with what the Commission sees as an urgent need to reform the market.

"Our carbon market is delivering emissions reductions. But because of the oversupply in the market, the ETS is not driving energy efficiency and green technologies strongly enough," Hedegaard said. "This is bad for Europe's innovation and competitiveness."

The Commission decided on holding back 900 million allowances, even though some market participants had called for deeper cuts to address the surplus.

"Backloading 900 million allowances is expected to have a more proportional impact, temporarily leading to a better balance between supply and demand and resulting in a more gradual build-up of the structural surplus, thereby reducing the risk of market price volatility in the transition to phase 3," it said.

Phase 3 covers the period 2013-2020 for the ETS.

Deeper structural reform is considered by many to be necessary but could take years, making it unlikely to be achieved before the current European commissioners end their term in 2014.

The Commission's views on long-term change for the scheme emerged last month in a draft seen by Reuters.

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