EU-wide policy at risk from CO2 market slump -Hedegaard

Tue Jan 22, 2013 10:45pm GMT

Quotes

   

* Risk national plans replace EU policy if CO2 market collapses

* Heavy industry opposes rescue plan

* Supporters say strong ETS needed as investment signal

By Barbara Lewis

BRUSSELS, Jan 22 (Reuters) - The European Union's Emissions Trading Scheme will collapse and give way to "a patchwork" of national plans unless the bloc can agree to an emergency rescue plan, the EU climate chief said late on Tuesday.

The value of allowances on the EU ETS dived to an all-time low below 5 euros ($6.64) a tonne on Monday before recovering slightly on Tuesday.

The sell-off has been linked to a huge surplus of permits generated by recession and to the failure so far of member states to back a Commission proposal to tackle the glut.

"If you get a very low carbon price, or maybe no carbon price, then the alternative is a patchwork of 27 different systems. We risk having a nationalising of energy and climate policies," Climate Commissioner Connie Hedegaard told a Brussels debate.

"They are toying with something very, very dangerous," she added of those among the 27 EU nations and within industry opposed to the Commission's rescue plan.

A meeting of representatives of member states on Wednesday will continue debate on the proposal known as backloading, which involves withdrawing temporarily some of the surplus permits for 2013-15 and adding them back to the market in 2019-20.

The meeting is not expected to progress as far as a vote, since dominant EU member Germany has yet to take an official stance.

Germany's reluctance reflects divisions between, on the one hand, the environment ministry and renewable industry, and on the other, the economy ministry and heavy industry lobby, which is nervous about anything that could drive up the price of energy.

Coal-dependent Poland has resolutely opposed the backloading proposal, saying the weakness of the ETS reflects economic malaise and there is no justification for market intervention.

COMPROMISE?

The European Parliament will take up the debate on Thursday.

Matthias Groote, chairman of the European Parliament's environment committee, who is steering debate on the proposal, said he was working to achieve a compromise.

He raised the idea of reviewing a "carbon leakage" list covering industries that argue they risk being driven out of Europe by the ETS.

The industries qualify for aid to compensate for the cost of carbon allowances.

"Probably, we have to check it again - in both directions," Groote said, referring to the possibility of removing industries from the list as well as adding them.

Commission officials have said that unless the emergency measure of backloading is passed, there is virtually no chance before the end of the current Commission's term in 2014 of mustering the political will for the deeper structural reforms the market really needs.

Eurelectric, which represents the European electricity industry, has said it supports backloading, while the energy-intensive aluminium and chemical industries have opposed it.

Royal Dutch Shell, keen for a stronger carbon price to justify carbon capture and storage and shift the economic balance away from coal burning towards cleaner gas, has also supported the Commission's plan.

"The solution is a robust carbon price delivered through a strong ETS," David Hone, senior climate change adviser at Shell , said. "We need to do this to avoid fragmentation of energy policy because fragmentation will lead to even higher energy prices."

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