E.U. to Fix Ailing Emissions Trading Scheme

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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland) -- The European Union (E.U.) is proposing to make key changes to the world's largest carbon cap-and-trade program in an effort to deal with a chronic oversupply of carbon credits and plummeting carbon prices.

E.U. Climate Commissioner, Connie Hedegaard, announced that it is planning to review the current auctioning rules and has proposed delaying the release of permits to deal with the oversupply problem. She has called on the Directorate-General for Climate Action to prepare the first annual report on the ETS. Since the inception of its latest phase 2011, the ETS has seen carbon prices drop by 60%. Hedegaard's comments prompted a minor revival in price to €7.45 euros ($9.7) a ton for December 2011. Earlier this month it an all time low of €6.34 thanks to lower than expected emissions brought on by weak power demand and a mild winter. Many investors and experts agree that the lower the price falls, the less attractive investing in renewable energy projects becomes.

The ETS is the world's largest carbon cap-and-trade program, covering more than 11,000 power stations, factories and refineries in 30 countries, which are responsible for almost half of the E.U.'s CO2 emissions.

"In the 2013-2020 period, there's today a tendency that you'll have much more allowances coming to the market in the early phase than in the later phase," Hedegaard told an informal meeting of Environment and Climate ministers in Horsens, Denmark, this week. "We think it's time to look into whether that makes sense."

She added: "We are now approaching rapidly the start of the third phase of the European carbon market. Major changes will apply as of next year to the regulatory underpinning of the EU ETS. 2012 marks the final preparations for the transition to the new rules. Our regulatory work over several years has aimed for a smooth transition into phase 3. Difficult and unexpected macroeconomic circumstances arising from the economic and debt crisis complicate this aim, as they have substantially altered the supply-demand balance in the European carbon market for the early years of phase 3".

Poland, which derives more than 90% of its electricity from high CO2 emitting coal-fired plants is against any efforts to raise the price of carbon. The country's Environment Minister, Marcin Korolec, reacted to the proposed E.U changes to the ETS scheme by saying it would 'bankrupt' Polish companies. He argued that the E.U.'s attempts to boost the carbon price during a time of economic austerity would result in an increase in the price of power.

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