BRUSSELS (Reuters) - The European Commission will outline a keenly-awaited plan on Wednesday to bolster the Emissions Trading Scheme (ETS) by reducing a massive burden of surplus allowances.
It is the latest of a string of efforts to fix a market, which is designed to be the mainstay of the EU’s climate policy, but in the past has been undermined by a series of scams and now is flooded with oversupply because of recession.
In April the price of carbon fell to a record low of 5.99 euros a tonne, far below levels needed to spur low-carbon investment and discourage polluters.
Early on Wednesday, the market was around 7 euros.
To tackle the surplus of carbon allowances, the Commission, the EU’s executive arm, has decided on a series of steps.
It is seeking clarification of an article governing the timetabling of auctions within the European Union’s ETS law. It is also making public a draft proposal on how to alter the auction timetable to delay the release of new allowances.
There will be no firm numbers in that draft proposal itself, although EU sources said debate had focused on withdrawing 400 million, 900 million or 1.2 billion allowances.
Environmental groups have made the case for 2 billion.
The aim of the timetable adjustment is to deliver a quick fix in time for the next phase of the ETS, beginning next year, while the legal clarification is an attempt to ward off any challenge that could derail the process.
Eurelectric, which represents the electricity industry, including giants such as E.ON (EONGn.DE), said it would welcome a first move from the Commission to “clarify the feasibility of a rapid, short-term adjustment”.
Other sections of industry are less favourable.
Europia, the European Petroleum Industry Association, said it opposed intervention.
“The EU ETS is responding to the economic conditions in Europe and therefore working as designed,” it said. “In addition, Europia has concerns as to the regulatory precedent that such an intervention would set.”
Whether the European Union can deliver a short-term solution over the coming months depends on the political will of its 27 nations, which have to endorse Commission proposals.
The prime EU opponent is Poland, which is dependent on carbon-intensive coal. Grateful for the economic reprieve provided by a weak carbon price, it opposes any intervention.
“What are the goals of the ETS? The goal is to reduce CO2 emissions. Nothing has changed. The ETS was never invented to create a price signal,” Polish Environment Minister Marcin Korolec told Reuters earlier this month.
By contrast, the biggest EU economy Germany, as well as Britain, are viewed as obvious supporters.
Britain has decided on a carbon floor price from next year and Germany needs ETS revenues to finance its shift to renewable power following its decision to withdraw from nuclear energy after Japan’s Fukushima disaster in March 2011.
Debate will begin in earnest after the Commission’s August recess during which the EU institutions suspend business.
The Commission later this year is expected to publish a review of the ETS, which is being brought forward from next year.
That could also kick off a much deeper debate about the wider reforms many see as necessary, such as permanently withdrawing, rather than just delaying the release of permits.
The problem with more far-reaching reforms is that under complex EU processes, they could take years rather than months.
Additional reporting by Nina Chestney and Jeff Coelho in London; editing by Rex Merrifield and Keiron Henderson