UPDATE 1-EU climate chief says to review carbon auction rules

Thu Apr 19, 2012 11:16am EDT

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By Barbara Lewis

HORSENS, Denmark, April 19 (Reuters) - The European Commission will review its auctioning rules for the EU's carbon Emissions Trading System (ETS) by the end of the year as part of efforts to boost the market, the EU's climate commissioner said on Thursday.

A review could help to tackle the glut that has pushed carbon prices down to record lows because it could alter the time scale of when allowances become available.

"We are moving forward with this first annual report, in which we will address a number of issues, including this auctioning profile," EU Climate Commissioner Connie Hedegaard told reporters.

"Then we will not be flooding the market with as many allowances."

She said she could not be too specific about the timing, but the review was being brought forward from next year.

"It will also be a golden opportunity to look into the auctioning profile for the 2013-2020 auctioning period," she said.

Any Commission proposal for reform would have to be approved by EU member states.

"We're one step closer to urgently needed intervention in the ETS," Sanjeev Kumar, senior associate at non-governmental organisation E3G, said.

The current phase of the ETS market runs until the end of this year and then a new regime comes into effect in which more allowances will be auctioned and less handed out for free.

The Commission has come under pressure from some sectors of business and from the European Parliament, which earlier this year called on the EU's executive to draw up a plan for removing a certain number of allowances from the market.

Hedegaard said the possibility of setting aside allowances was under consideration, but the Commission had been looking for something it could do "more or less right away".

Analysts said the effect of reviewing the auction time scale could be the same.

ETS LUNCH

Hedegaard was speaking on the sidelines of informal meetings of EU energy and environment ministers in Horsens, Denmark, which held a lunchtime debate on the ETS.

"There was strong and unanimous support from both ministers and industry on the ETS," Martin Lidegaard, energy minister for Denmark, holder of the current EU presidency, told reporters.

Poland, however, which is heavily dependent on carbon-intensive coal, has repeatedly made clear its opposition to anything that would drive-up the price of carbon allowances.

Carbon analysts said the carbon market, which fell to just under 6 euros early this month, should draw support from the news.

"It's a clearly bullish sign because this one of the most promising statements (about tackling the supply problem) we've seen from the European Commission so far," Ingo Tschach, managing director of Tschach Solutions, said.

The market dipped immediately after Hedegaard's statement and then recovered to trade nearly 1 percent higher on the day at around 7.4 euros.

Prices have collapsed under the pressure of surplus allowances caused by economic recession and are far too low to spur low carbon investment.

"It's not going to solve all the market's problems but at least it could happen this year and would be an important first step," Peter Liese, a German Christian Democrat Member of the European Parliament, who has been among those arguing for intervention. (Additional reporting by Ben Garside and Jeffrey Coelho in London,; Editing by Rex Merrifield and Alison Birrane)

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