* EU member states expected to vote on Dec. 13
* Commission to follow up with carbon market report
* Market rallied ahead of announcement
By Barbara Lewis
BRUSSELS, Nov 12 The European Commission
proposed postponing the auction of 900 million pollution
allowances in the next phase of the EU Emissions Trading Scheme,
to prop up the carbon market.
The plan would push back allowances from the first three
years of the 2013-2020 phase of the ETS, a scheme meant to
reduce the output of climate-changing gases.
The market has lost its effectiveness because of a glut of
allowances unused in the regional economic slowdown.
"The figure of 900 million allowances has been put forward
in the light of views expressed by member states and
stakeholders," the Commission said in a statement on Monday.
Earlier this year, the Commission outlined its plan with
options for withholding temporarily - known as backloading -
400 million, 900 million or 1.2 billion allowances.
Anticipation of Monday's announcement, which came after the
market close, had driven allowances on the ETS to just above 9
euros, up nearly 9 percent from the previous close.
That is substantially up from a record low of 5.99 euros per
tonne of carbon reached in April.
The Commission's plan will now be debated further by EU
member states, which are expected to take a vote on Dec. 13.
So far Poland, which is heavily dependent on
carbon-intensive coal, has stood out as the main opponent of
intervention to raise the carbon price.
Some representatives of heavy industry say intervening would
impose an undue burden in difficult economic times and could
drive plants out of Europe.
Others, including oil majors such as Royal Dutch Shell
, keen to justify investment in technology such as
carbon capture and storage, and Dong Energy, have
spoken in favour of action.
Apart from the short-term solution of a temporary withdrawal
of permits, the European Commission is also expected to put
forward proposals for more lasting solutions to the carbon
market's weakness, such as permanent removal of allowances.
Details are expected in a carbon market report scheduled for
publication on Wednesday.
Campaign groups said Monday's proposal marked some progress.
"It's an important first step," Sanjeev Kumar, senior
associate at non-governmental organisation E3G, said. "It's
crucial to move now on to the debate about cancelling
An impact assessment published together with Monday's
proposal estimated the surplus of allowances on the ETS at the
end of last year stood at almost 1 billion.
It said that surplus was likely to keep growing, because of
economic weakness that has sapped demand from industry and
utilities, as well as improved energy efficiency measures.
"Overall a surplus is expected by 2020 in the order of
magnitude of 2 billion," it said.
The change to the auction timetable as proposed by the
Commission does not change the overall quantity of allowances.
"Back-loading is expected to increase the carbon price,
compared to the current timetable, in the short-term, but this
expected to be balanced with a decrease in the price later on,"
the assessment of the draft law's impact said.