October 17, 2016 / 2:16 PM / 9 months ago

Sweden proposes measures to strengthen carbon prices

4 Min Read

* Surplus of carbon credits has weakened market

* Carbon price has slid to 6 euros from highs above 30 euros

* European bill insufficient to fix system -Swedish minister

* Swedish proposals include five-year expiration for permits

BRUSSELS, Oct 17 (Reuters) - Sweden has proposed measures to strengthen carbon prices from 2020, the country's climate minister told Reuters on Monday, seeking to soak up the glut of credit in the EU Emissions Trading System (ETS).

A European bill to reform the ETS system to make big polluters pay for emissions is being debated by EU lawmakers and member states, but Sweden's climate minister Isabella Lovin has presented new proposals to 13 EU environment ministers with the aim of putting a ceiling on emmissions.

"The ETS system is not working now and we don't see that the (European) Commission's proposal is sufficient in making sure that the price signal is strengthened," Lovin said after a meeting with the 13 ministers who call themselves the Green Growth Group.

Prices under the ETS scheme have plummeted to 6 euros from highs above 30 euros in 2008 and are well below the level companies say is needed to spur investment in technology to cut emissions.

Lovin's proposals included a firming up of the Market Stability Reserve (MSR) to remove some of the surplus allowances, scrapping permits above a set ceiling and the possible introduction of an expiration date to cancel surplus permits after five years.

France has also announced plans for a carbon price mechanism to help to fix the ETS, but other EU nations fear that tougher pricing could push industry to relocate abroad.

While the Swedish proposals touch on a plan to tighten the rate at which permits should be removed from the market from 2020-2030, Lovin said doing so is politically difficult.

The European Parliament's industry committee have backed keeping what is known as the linear reduction factor at the 2.2 percent annual rate proposed by the Commission.

The chamber's Environment Committee, which has the main responsibility for reforms, favours a faster pace of reduction to take into account the goals of the Paris Agreement on climate change, which was thrashed out by 195 nations last December.

It will vote on its amendment to the proposal in December.

Ian Duncan, who is shepherding the EU bill through the European Parliament, said last week that he was considering potential tweaks to the MSR, which would have a bullish effect on prices.

"I want to look at the market stability reserve again. I want to look at it now. Take allowances out of it now," he told the Carbon Pulse Carbon Forward conference.

In its drive for a more ambitious ETS, Sweden is also pioneering a programme to purchase and then scrap 30 million euros of carbon credits a year -- equating to about 10 percent of its total emissions -- from 2018 to 2040.

"This is also a way for us to show our ambition and that we are serious about this," Lovin said. (Reporting by Alissa de Carbonnel; Additional reporting by Susanna Twidale in London; Editing by David Goodman)

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