EU ETS reaches crisis point

A huge surplus of EU emissions trading scheme (ETS) permits has led to a collapse in their value, threatening the future of the scheme, climate change commissioner Connie Hedegaard has warned

Unless emergency measures underpinning the carbon price are endorsed, the ETS could be replaced by a “patchwork” of national systems, she said.

The European Commission estimates that the number of excess permits reached 1.7 billion in December 2012. The surplus, which is mainly due to the continuing economic crisis, has caused the price of allowances to plummet. And at the start of February they were trading at about €4.

The commission has proposed delaying the auction of 900 million allowances to boost the carbon price during phase III. It believes the process, known as “backloading”, could cause the price of permits to rise to €12 by 2015.

Several member states, including Poland, are opposed to the measure, however. And, the European parliament’s industry, research and energy committee recently voted against the plan.

“The alternative to [backloading] is a re-nationalisation of climate tools, meaning a future patchwork of up to 27 different systems and taxes instead of one market creating a level playing field internally in Europe,” said Hedegaard.

Chris Davies, MEP and regular columnist in the environmentalist, warns that the decision of the IRE committee indicates that securing a parliamentary majority in favour of commission’s plans will not be easy.

He says that one reason for the opposition is that backloading is seen as a precursor to set aside, meaning the allowances will be permanently removed from the market.