First EU ETS report expected in June as carbon prices fall

EU CO2 allowance (EUA) prices could fall below €5/t if the EU cannot agree on the set-aside proposal, according to Deutsche Bank analysts. 

At the start of the month, prices fell to €6.14, with Members of the European Parliament calling for the EU to intervene and reduce the supply of carbon allowances. In addition, EU Energy Commissioner Gunther Oettinger announced that the European Commission needs to prepare a proposal to encourage investment and drive EUA prices up. 

On 19 April, the bloc’s environment ministers held a meeting to discuss the future of the European Emissions Trading Scheme and DG Climate Action (DG CLIMA) was urged to make proposals to stabilise and possibly increase the carbon price. 

DG CLIMA Commissioner Connie Hedegaard responded by saying the Commission would publish the first annual ETS report in two months, well ahead of its original 2013 schedule. The report will analyse potential policy options, including the set-aside arrangement, establishing a floor price or 2030 targets – aimed at pushing up the EUA price. Furthermore, the Commission will propose to delay the sales from the early years of the 2013-20 stage by an amendment through comitology to the Auctioning Regulation.

“We are now rapidly approaching 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. I have therefore asked my services in DG Climate Action to bring forward the first annual report on the ETS. This report is envisaged by the ETS Directive in 2013, the first year of phase 3, but I have asked for it to be prepared already now. This offers an opportunity to include a review of the auction time profile. Based on this annual report, I will consider bringing forward a proposal to the Climate Change Committee for decision this year," said Connie Hedegaard.

The news was welcomed by the International Emissions Trading Association (IETA). “Her statement confirms the importance for EU policy makers of the EU ETS as the cornerstone of EU climate policy.  It aims to deliver reductions in the short-term while giving a signal for investment over the longer term. Statements from the Danish Presidency and the Commission also highlight the importance of clarifying emission reduction targets for 2020 and 2030. These are the hallmarks of a sound carbon policy, and we trust that the Review will enhance the program’s effectiveness in light of urgent economic challenges,” commented Henry Derwent, IETA president and CEO.

As the Commission undertakes its Review, IETA urges that it should assess the emissions reductions attributable to the ETS, the impacts of overlapping policies and the potential costs and benefits of moving to more ambitious targets now compared to reducing more later. In addition, it considers it essential to research the potential for linking short term measures to longer term reforms, such as the cap setting process.