EU's Hedegaard still plans ETS review before summer

BRUSSELS Tue Jul 10, 2012 6:43am EDT

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BRUSSELS (Reuters) - EU Climate Commissioner Connie Hedegaard said her team was working "very, very hard" to publish a review on the emissions trading scheme before the Brussels August break, a step towards bolstering carbon prices impatiently awaited by the market.

Analysts have estimated carbon emission allowances need to be priced between 20 and 50 euros to support low-carbon investment. They were trading around 8 euros on Tuesday, after hitting a low of 5.99 euros in April, because of a surplus following a slump in demand, along with the economy of the euro zone.

The Commission review is intended to deliver a quick fix by proposing changes to the auction timetable to delay sales of new allowances in the next phase of the Emissions Trading Scheme (ETS), starting in 2013.

Hedegaard announced the review in April and said then it would be published before the summer recess.

"We are still working very, very hard to try to finish it before the summer," Hedegaard told a breakfast meeting in Brussels on Tuesday when asked about the time-scale. She did not set a date, however.

Hedegaard cited Commission estimates that the surplus stands at "more than 950 million allowances".

While some business leaders are keen for a higher carbon price to help support investment in low-carbon energy, others oppose intervention at a time of economic crisis.

The quick fix is expected to encounter less opposition, while deeper structural reform will have to wait.

Hedegaard said it was essential to get conditions right now to avoid locking in to the wrong kind of energy technology and higher costs in the future.

SLUGGISH GROWTH

Economic forecasts remained sluggish, she noted, meaning there is little prospect of a surge in demand to mop up the surplus of allowances when the next phase starts.

Hedegaard said there was a high risk the nations that want a higher carbon price would act unilaterally to support it, causing fragmentation that runs counter to the EU aim of a single energy market and to the business case for a predictable regulatory environment.

Britain, for instance, has decided on a carbon price floor, an idea Hedegaard did not endorse.

"It's a market-based system. If you have a floor price, it's not very long before people start talking about a ceiling," she said.

For all its weakness, Hedegaard said the ETS was still "the key tool" for delivering EU low carbon policies and cutting emissions.

The European Union has sought to lead international efforts to curb greenhouse gas emissions and to tackle climate change. It was credited with helping to keep alive the Kyoto process at talks in Durban last year.

Maintaining the momentum at talks in Doha scheduled for the end of this year will be a massive challenge after preliminary talks in Germany in May delivered little.

"I am concerned about Qatar," Hedegaard said. "In Bonn, it took the first 10 days just to agree an agenda. That is not the kind of speed at which we can progress."

The Bonn talks will be followed next week by a meeting in Berlin, where Hedegaard said the European Union would insist that other countries deliver their side of the bargain.

"The clear message from Europe will be that we don't just come to deliver financial help if the rest of the package is not progressing."

(editing by Jane Baird)

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