Backloading ETS finally gets green light

17th December 2013

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Catherine Malden

European member states have backed moves to withhold the sale of 900 million ETS allowances in a bid to boost the price of carbon

The European council yesterday (16 December 2013) voted in favour of proposals agreed by the EU parliament that will enable the commission to postpone until 2019–20 the sale of emissions trading scheme (ETS) credits scheduled for sale in 2013–15.

The move, which will be a one-off change due to “exceptional circumstances” states the council decision, has been designed to prevent the current surplus of ETS allowances from continuing to depress the price of carbon.

Owing to the economic downturn, the commission estimates that there were approximately 2 billion surplus ETS allowances when the third phase of trading started on 1 January 2013.

As a result, the price of carbon during 2013 fell to record lows, undermining the system’s ability to incentivise big energy users to cut their greenhouse-gas emissions. EU ETS credits are currently trading at about €4.70, compared to a peak of €30 in April 2006.

Energy secretary Ed Davey welcomed the council’s decision to support backloading, but warned that more changes were needed to the ETS.

“I am pleased that both the council and the European parliament have given final approval of this temporary measure. I look forward to its swift implementation as soon as possible,” he said.

“However, we need urgent structural reform to strengthen the EU ETS, and deal with the glut of allowances that is reducing the price of carbon so that it can provide a strong, long-term signal to stimulate low-carbon investment.”

EU countries must now decide on exactly how to change the auction calendar for ETS allowances up to 2020. One option would be to remove 400 million allowances from sale in 2014, 300 million in 2015 and 200 million in 2016, and then reintroducing 300 million allowances into the 2019 auctions and the rest in 2020. A vote is likely to take place in January.

New legislation on emissions trading in the UK was laid before parliament last week and will come into force on 31 January 2014.

The Greenhouse Gas Emissions Trading Scheme and National Emissions Inventory (Amendment) Regulations 2013:

  • clarify the level of civil penalty to be imposed on operators carrying out unauthorised ETS activities;
  • replace the National Emissions Inventory’s system of criminal sanctions with a civil 
penalty scheme;
  • bring the penalty applicable as a result of under-reporting ETS emissions prior to 2013 into line with the penalty from 2013; and
  • confirm that regulators have the ability lower or even waive a civil penalty, where operators self-report and surrender the requisite number of allowances.

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