UPDATE 1-Britain urges deeper EU carbon market reforms than proposed

Wed Jul 16, 2014 2:15pm EDT

* UK wants to cancel number of permits to boost green investment

* Still considering proposal to deploy permit reserve

* Most EU nations back reform, unsure on timing (Adds details following a meeting of EU environment ministers)

LONDON, July 16 (Reuters) - Britain wants deeper reforms to the EU Emissions Trading System (ETS) than those proposed by the European Commission and Germany, favouring cancelling hundreds of millions of carbon permits over launching a tool to regulate market supply.

In a report detailing its vision for the 2021-2030 ETS phase, Britain said major changes are needed to help businesses cut emissions, to protect them from foreign competitors, and foster investment in low-carbon technology.

"The UK is asking for bold and comprehensive reforms to restore the ability of the EU ETS to drive cost-effective emission reduction and low-carbon investment," Ed Davey, secretary of state for energy and climate change, said in a statement on Wednesday.

The Commission, the EU executive, has proposed launching a so-called market stability reserve (MSR) from 2021 to regulate the supply of allowances in the ETS, the bloc's main weapon to combat climate change.

As the only legislative proposal so far among wider recommendations to extend energy and climate goals to 2030, the MSR aims to expedite the shrinking of a surplus of more than two billion permits, which has knocked EU carbon prices to around 6 euros per tonne from more than 30 euros in 2008.

Britain has not formally backed the MSR but has pointed out that the sooner reform takes place, the sooner the ETS can be restored as an effective policy.

"The MSR can potentially help but it is not the comprehensive change we urgently need to tackle the surplus," said a spokeswoman for Britain's Department of Energy and Climate Change, adding that the government is studying the proposal.

Instead, Britain said it wants to cancel permanently a "significant number" of the surplus permits, without specifying a figure or range.

The spokeswoman said the government is also weighing a separate proposal from Germany to start the MSR in 2017, some four years earlier than proposed by the European Commission.

Germany wants the 900 million allowances delayed from sale under the EU's so-called backloading initiative to be put directly into the reserve, rather than gradually reintroducing them to the market as proposed by the Commission.

FOR AND AGAINST

Britain's announcement was published following an informal meeting on Wednesday of all 28 EU environment ministers in Milan, Italy.

While a majority of EU member states and the European Parliament must agree on any reforms for them to become law, the talks are still at an early stage.

"It seems there is very solid backing for the establishment of the market stability reserve; that was rather a clear message given," Connie Hedegaard, Europe's climate commissioner, said by phone after the meeting.

"At issue seems to be whether it starts in 2021 or at an earlier date, though some member states did not come out on their preference. We need to know more from them," she added, declining to give details about specific countries.

The MSR proposal is likely to face resistance from coal-dependent eastern states fearing higher energy costs than those with a higher share of low-carbon energy production.

The Commission is keen for lawmakers to treat the reform separately from potentially lengthier talks on the 2030 targets to ensure it can be passed into law early next year.

But some EU nations believe the issues are closely connected and best tackled together, according to two officials present at the meeting who asked not to be named for policy reasons. (Reporting by Michael Szabo and Ben Garside; Editing by Dale Hudson and James Dalgleish)

 
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