(Adds comments, details)
By Barbara Lewis and Michael Szabo
BRUSSELS/LONDON Nov 8 European Union diplomats
on Friday agreed to begin talks on a legal text to slash permit
supply and prop up carbon prices in the bloc's Emissions Trading
Scheme (ETS), marking a big step forward for the divisive
Lithuania, current holder of the EU presidency, said member
states would start three-way negotiations with the European
Parliament and European Commission over the "backloading" plan.
Under it, the sale of 900 million carbon permits would be
delayed until later this decade.
"Common sense prevailed. Almost unanimous support from
member states. (We're) moving toward a stronger ETS," EU Climate
Action Commissioner Connie Hedegaard wrote on social media site
Europe's recession has resulted in a massive oversupply of
permits in the EU ETS, which caused the price of allowances to
tumble below 5 euros ($6.71) from over 30 euros in 2008.
The Commission wants to intervene in the market to lift
these prices to a level that incentivises companies to cut their
greenhouse gas emissions, for example by investing in energy
efficiency or switching to renewable energy sources.
Even if agreed, analysts predict it will be years before
European carbon prices rise to such a level, however, which they
see at at least 40 euros ($53.53).
Still, the proposal has divided member states over fears it
will push up energy prices and dent economic growth.
At least three countries including coal-reliant Poland
oppose the move while others, including Germany and Spain, were
undecided due to ministerial conflicts.
"Today's meeting was the litmus test for the process as
influential member states such as Germany and Spain finally
provided their view," said Marcus Ferdinand, an analyst at
Thomson Reuters Point Carbon.
"This mandate is not the adoption of the backloading but has
pushed the process a big step forward."
German MEP Matthias Groote, who will chair the Parliament's
negotiating team, said it would allow the EU to advance quickly
in adopting the text into law.
A Commission spokesman added: "In the next two weeks we
should have a final agreement. We really hope that the
institutions will finalise this by the beginning of next year."
Front-year EU carbon prices jumped to a seven-day
high of 5.04 euros on the news, but retreated back to an
intraday low of 4.60 euros by 1106 GMT, down 20 cents or 4.2
percent below Thursday's settlement.
If agreed in the three-way talks, the final text would then
go to the parliament's environment committee before being sent
to the European Parliament for a final vote, tentatively
scheduled for Dec. 10.
Member states in the EU Council of ministers would also need
formally to approve the plan when they meet in mid-December,
meaning the first permits could come out of the market in the
first half of 2014.
While backloading still lacks enough formal support from
member states, Friday's agreement suggests previously undecided
countries have now warmed to the proposal.
Germany's two main political parties, which are in the midst
of forming a new coalition government, said this week they had
reached agreement on backloading, paving the way for the country
to formally support it in Council next month.
Sources in Brussels said only Poland and Cyprus opposed the
measure at Friday's talks, which, after a year of arduous
negotiations, were seen as one of the last opportunities for
countries to make known their views on backloading.
Greece had previously said it was opposed to it, but a
government source in Brussels said Athens had "changed its mind"
and is likely to support the measure.
Countries want backloading to be accompanied by an
assessment of how it will impact the market, followed by wider
reform of the ETS.
($1 = 0.7472 euros)
(Additional reporting by Ben Garside in London; editing by Dale
Hudson and Jason Neely)