LONDON, Jul The increasing importance of climate spending in European Union budget proposals could give the EU Commission more influence over talks for a deeper emissions cut target, which could help lift EU carbon permit prices, Barclays Capital analysts said in a research note on Monday.
"If, when and how this will happen is all unclear..., (but it) does at least provide some upside risk to prices - something in very short supply at the moment," analysts said.
Prices for carbon permits traded under the EU's emissions trading scheme have fallen nearly 30 percent over the past six weeks due to concerns about the eurozone economy and over-supply of permits.
Some market participants are keenly awaiting any news which would help push prices higher.
The EU Commission has been pushing to tighten its emissions cut target for 2020 to 30 percent from 1990 levels from the current 20 percent.
Poland has stalled debate on the issue, mainly because it is very reliant on coal for electricity and a tougher target would prove very costly.
"The failure to put the topic on the current agenda means that over the next six months, when Poland holds the EU Presidency, there may be little progress on target deepening," BarCap said.
But hopes have not faded completely because, given the increasing importance of climate spending in the EU budget, the EU Commission might be more influential over discussions around deepening the target, analysts added.
At the end of last month, the EU Commission's climate department said that under current proposals for a seven-year EU budget from 2014 to 2020, around 25 percent or 200 billion euros ($282 billion) would be spent on climate-related projects.
EU governments and the EU Parliament willl vote on plans for bigger spending this October.
"The idea in these initial proposals (...) is that climate change issues will become an important consideration in the big-spending sectors - like transport and energy," said analysts.
"And the interesting thing is that this can give (the Commission) a fair amount of leverage in the target-deepening discussions."
($1 = 0.708 Euros)
(Reporting by Nina Chestney)