Commission acts to save ETS

27th July 2012

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Allowance auctions for the EU emissions trading scheme (ETS) will be delayed under new plans from the European Commission to boost the carbon market

The commission proposes amending the EU ETS Directive to enable it to postpone the sale of ETS allowances in “exceptional circumstances”, following repeated warnings from industry and environment groups that a surplus of credits was undermining the scheme’s effectiveness.

Economic stagnation across the bloc means that manufacturing output is much lower than predicted when the ETS was designed, resulting in an over allocation of credits and dramatic falls in the cost of carbon over the last two years.

The price of allowances peaked at around €30 in April 2006, but in April this year reached a record low of just €5.99, prompting calls for credits to be withdrawn when the next phase starts in 2013.

The problems have been exacerbated by changes to the scheme in 2011, when the sale of some phase 3 allowances were brought forward to 2012 in an attempt to help a smooth transition between phases 2 and 3.

“The EU ETS has a growing surplus of allowances built up over the last few years,” said climate action commissioner Connie Hedegaard, announcing the commission’s plans. “It is not wise to deliberately continue to flood a market that is already oversupplied.

“This is why the commission has paved the way for changing the timing of when allowances are auctioned.”

Alongside amending the Directive to give the commission the power to change the timing of auctions, the commission has proposed changing the Auctioning Regulation to “backload” the sale of allowances in phase 3, moving auctions from 2013-2015 to 2018-2020.

While acknowledging that the move was only a short-term fix, Hedegaard argued that it would stabilise the EU’s carbon market.

In the UK, the CBI agreed that backloading allowances could prove useful but that a longer-term strategy was needed.

“Businesses agree that emissions trading is the best way to encourage the investment needed to meet carbon targets. However, the EU ETS is currently out of step with Europe’s long-term climate goals, and investors urgently need to see emissions targets for 2030 and beyond,” said Dr Matthew Brown, the CBI’s head of energy and climate change policy.

The commission is due to publish a report on the future of EU ETS in the autumn and Hedegaard confirmed that the commission will begin working on its long-term strategy for the scheme after the summer recess.

In the meantime the commission is asking for feedback on its proposals to backload the sale of allowances in a consultation that will close on 3 October.

The news of potential changes to the ETS came as the UK’s energy and climate change committee called on the EU to set tougher carbon reduction targets of 30% by 2020, to drive international action on climate change. Under phase 3 of the EU ETS, which runs to 2020, participating installations are required to cut their emissions by 21% against 2005 levels.


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