UPDATE 1-EU officials hold preliminary talks on propping up carbon market

Wed Sep 19, 2012 1:14pm EDT

Related Topics

* Too early to decide how many allowances to withhold

* Next meeting in October

* Carbon market trades narrow range as uncertainty drags on (Updates with closing price, para 7)

By Barbara Lewis and Nina Chestney

BRUSSELS/LONDON, Sept 18 (Reuters) - EU technical experts on Wednesday held a preliminary discussion on proposals to prop up the EU Emissions Trading Scheme, with Poland standing out as the sharpest opponent, while the majority of nations took no firm position, EU sources said.

The closed-door meeting did not get as far as a numbers debate about how many allowances should be withheld from the next stage of the Emissions Trading Scheme (ETS) beginning next year, one source said on condition of anonymity.

Another said "there were constructive discussions, but no conclusions". The Climate Change Committee is scheduled to meet again on Oct. 17.

"The big member states do not yet have clear positions - this is the case for most member states," another source said.

The carbon market traded a narrow range during Wednesday's meeting, as the uncertainty deterred trade.

It is anxious for action as soon as possible to remove a huge surplus of permits generated by recession that in April pushed the market to a record low of 5.99 euros a tonne.

On Wednesday, the market rose 1.47 percent to 7.57 euros.

Commission analysts have presented three options: withholding 400 million, 900 million or 1.2 billion allowances over the first three years of the market's next phase, which begins next year.

"In our view, a number around 400 million would be a disappointment to the market and would risk seeing prices trade lower than current levels, while a number close to 900 million or 1,200 million should in our view be enough to push prices back towards 15 euros per tonne or higher over the second half of 2013," Isabelle Curien, analyst at Deutsche Bank, said.

Poland, which is heavily dependent on carbon-intensive coal, has consistently opposed anything that would drive the price of emissions higher, arguing it would be an economic setback in difficult times.

EU sources said Slovakia had also stated opposition to backloading and earlier this month the Netherlands' environment minister said the nation opposed the temporary withdrawal of permits, known as backloading, because it would not address the market's long-term problems.

EU sources said on Wednesday, the Netherlands was asking for more time to develop its position following last week's election.

PERMANENT ACTION NEEDED

Britain, which has agreed a price floor, has said it supports action to remove surplus allowances, but it wants the permanent withdrawal of allowances, not a temporary backloading.

"The UK agrees with the European Commission that it is important to act now to rectify the current situation in the EU ETS," a spokeswoman for Britain's Department of Energy and Climate Change said.

"The UK feels that it would be most effective to permanently remove an ambitious quantity of allowances from the market now, as a one-off intervention in the face of exceptional circumstances."

Germany, Europe's biggest economy, has repeatedly struggled to reach a position on many EU issues as its economy and environment ministries fail to agree.

But German Christian Democrat parliamentarian Peter Liese said members of the German parliament were calling for action because of the need for ETS revenue.

"One of the most important arguments for an intervention in the ETS is in fact that member states, for example Germany, have planned their investment in low-carbon technology, mainly not renewables but energy efficiency, carbon capture and storage and others, on the assumption of a much higher carbon price," he said.

Within the business community, representatives of heavy industry have opposed intervention in the carbon market.

Other sectors - including oil and gas firms eager to make carbon capture and storage viable and to encourage gas-generation rather than coal-fired power - have said they support the Commission plan. (Additional reporting by Angelika Stricker in Brussels and Ben Garside in London, editing by William Hardy)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.