New German coalition opposes cancelling CO2 permits permanently

LONDON Wed Nov 27, 2013 8:57am EST

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LONDON Nov 27 (Reuters) - Germany's new coalition government, while backing the EU's backloading plan to delay the sale of 900 million carbon emission permits, will oppose any move to cancel them permanently, a coalition document showed.

Chancellor Angela Merkel's conservatives clinched a coalition deal with the Social Democrats early on Wednesday that puts Germany on track to have a new government in place by Christmas following two months of negotiations.

According to the 185 page document, the coalition appeared to reject any additional move to cancel permits under the Emissions Trading Scheme (ETS).

"It must be ensured that (backloading) is a one-off intervention in the system and that certificates are not permanently withdrawn from the market and there are no adverse effects to the competitiveness of affected sectors or industry jobs," the document said.

The Commission proposed backloading as a quick-fix measure to incentivise companies to invest in green technologies by propping up prices that have plunged to near-record lows below 5 euros.

EU lawmakers agree on backloading and are expected to formally sign off on the bill next month.

Analysts expect backloading to push prices into double figures in the ETS, which regulates around half of EU greenhouse gas emissions by forcing companies to surrender one permit for every tonne of CO2 they emit.

But without further reform, the permits are due to return to the market at the end of the decade, potentially sending prices down to current levels.

A permanent cancellation of the backloaded permits is one of three options the European Commission is considering proposing in January and has been strongly supported by Britain.

It would need to be agreed by the European Parliament and the council of member states in a legal process that could take up to two to three years.

"The coalition document is not binding on the government, but the wording is clear and does not allow much room for interpretation," said Marcus Ferdinand, an analyst at Thomson Reuters Point Carbon.

"Given that Germany is an important member state, when it comes to decision-making procedures on the European level, I would see chances for a permanent cancellation being lowered with the adoption of the coalition contract," he added.

The document also said the coalition was committed to an EU move to cut its overall greenhouse gas emissions by at least 40 percent by 2030, in line with a level suggested by the EU Commission and backed by France and a handful of other member states. (Reporting by Ben Garside; editing by Jane Baird)

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