EC seeks to 'backload' emission allowances

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BRUSSELS, Nov. 16 (UPI) -- The European Commission moved this week to hold back a nearly 1 billion greenhouse gas allowances set to become available under its emissions trading system.

EU ministers Wednesday also laid out a short list of options to rescue the ETS at a time when prices for the allowances are at all-time lows and European industries are fearful of ill-timed energy cost hikes.

"Our carbon market is delivering emissions reductions," European Commissioner for Climate Action Connie Hedegaard said. "But because of the oversupply in the market, the ETS is not driving energy efficiency and green technologies strongly enough. This is bad for Europe's innovation and competitiveness."

As an immediate first step, the commission proposed to "backload" 900 million European Union Allowances, into the latter end of the new, seven-year phase of the ETS beginning in January, making fewer allowances available now.

The European Union estimated that a surplus of up to 2 billion allowances would otherwise be on the market in 2013.

"We must not flood a market that is already oversupplied," Hedegaard said. "Market operators must have clarity before year-end on this."

The EU Climate Change Committee, the European Parliament and the Council of Europe must OK that provision before it can be enforced.

Under the EU ETS, heavy industries, energy companies and other air polluters can purchase allowances to emit greenhouse gases above their allowable quotas, which, if expensive enough, can persuade them to make the changes necessary to cut emissions levels.

The free-market ETS system has been shown to work when demand for the allowances are high but due to financial crisis and resulting economic slump, European industrial activity has slowed, dampening demand for the allowances.

That, in turn, has caused the formation of surpluses, sending prices for the carbon allowances tumbling well below the level needed to persuade industrial buyers to reduce greenhouse gas emissions.

Analysts say a price of $30-$50 per ton of carbon equivalent is necessary to prompt polluters to invest in greenhouse gas-reducing measures -- Wednesday's price closed at $10.10 after a one-day, 8 percent plunge.

The commission also released a six-item list of possible long-term fixes for the low EUA prices, including bumping up the European Union's 2020 emissions reduction targets from 20-30 percent of 1990 levels.

Among the other possibilities mentioned were permanently retiring an unspecified number of allowances; bringing more industry sectors under the jurisdiction the EU ETS; and introducing "discretionary price management mechanisms" such as a price management reserve.

Reaction to the moves were mixed, ranging steel industry complaints of added costs to measured support from some business and environmental groups, many of whom cautioned the proposed fixes don't go far enough to restore the ETS' effectiveness as an anti-pollution force.

Hans Jurgen Kerkhoff, president of the German Steel Federation, last week reiterated his opposition to reducing the number of allowances, calling it an example of the "high hurdles (facing steelmakers) caused by energy and climate policy," Platt's business news service reported.

Under the move, Kerkhoff said, EU steelmakers' competitiveness would take a hit from higher carbon and electricity prices.

Meanwhile, Eurelectic, the trade group of EU electricity producers, said it "welcomes structural proposals to strengthen ETS," praising the system as the most cost-effective way to fight climate change.

But it also urged the European Union to adopt "an ambitious, firm, long-term, economy-wide, greenhouse gas reduction target for 2030 up to 2050, in line with the European Council goal."