* Some in industry support intervention, others oppose it
* Poland leads opposition within EU member states
* Debate on deeper structural reform to follow
* Quick fix possible, provided there is political will
* Market drops around 5 percent
By Barbara Lewis
BRUSSELS, July 25 The European Commission
presented keenly awaited plans to bolster the Emissions Trading
Scheme (ETS) by reducing a massive burden of surplus allowances
and urged member states to hurry them through by the year-end.
The proposals are the latest in a series of efforts to fix a
market designed to be the mainstay of the EU's climate policy.
In the past it has been undermined by scams. Now it is
over-supplied by millions of allowances because of recession.
"The EU ETS has a growing surplus of allowances built up
over the last few years. It is not wise to deliberately continue
to flood a market that is already over-supplied," Climate
Commissioner Connie Hedegaard said.
In April the price of carbon fell to a record low of 5.99
euros a tonne, far below levels needed to spur
low-carbon investment and discourage pollution.
On Wednesday, the market dropped back below 7 euros, falling
around 5 percent from the previous close.
To tackle the surplus, the Commission, the EU's executive,
has decided on a series of steps, which it hopes can offer a
solution in time for the next phase of the ETS, beginning 2013.
They include delaying the auction of new allowances and
clarifying an article of EU law on auction time-tabling.
There are no firm numbers in the Commission's draft
proposal, although a Commission analysis presents three options
-- withholding 400 million, 900 million or 1.2 billion
allowances over the first three years of the market's next
"What we have been saying is that the surplus is up to 1.4
billion, but I understand from the technical experts we have to
have certain room. You cannot eat up all the flexibility in the
system, so 1.2 billion as far as they can see, that's probably
the maximum," Hedegaard told Reuters.
MORE TO COME
After the Commission's summer break, the outline proposal
and analysis will be debated by officials from all member states
at a meeting of the Climate Change Committee on Sept. 19.
"We hope we will get a pretty clear message already on
September 19," Hedegaard said.
Also later this year, the Commission will present its first
report on the functioning of the carbon market, which could
launch a debate on the deeper reform many say is necessary.
Such structural change could include the permanent, rather
than temporary withdrawal of allowances, but it would require
much longer political debate.
The idea of adjusting the auction timetable is that this can
be agreed relatively easily through a fast-track EU process.
European Union member states still need to endorse it.
"The Commission aims at having all the necessary political
decisions taken before the end of the year. We have delivered
the proposal before the summer break, and now its up to member
states and the parliament to deliver as soon as possible,"
Commission spokesman Isaac Valero-Ladron told reporters.
The prime EU opponent is Poland, which is dependent on
carbon-intensive coal. Grateful for the economic reprieve
provided by a weak carbon price, it opposes any intervention.
Germany, the EU's biggest economy, can use ETS revenues to
help finance its shift to more renewables following its decision
to withdraw from nuclear energy after Japan's Fukushima
disaster. Germany, however, also has a powerful heavy industry
Reacting to Wednesday's news, the German economy ministry
said it saw no need to intervene, especially in difficult
economic times, while the nation's environment ministry had yet
Within the business community, some have lobbied hard for
action to take the market to a level to drive low carbon
investment. Analysts have said a price of anywhere between 20
euros and 50 euros is needed to encourage green power.
A statement signed by a group of energy firms, including
Statoil, Royal Dutch Shell and Dong Energy
welcomed the proposals.
They called for "the re-profiling of the auctioning
calendar" to withhold a minimum of 1.4 billion allowances -- a
figure backed by a European Parliament committee vote last
Others in industry said there was no case to remove permits.
"In a recession, in a very deep economic crisis, of course
nobody in his right mind would try to artificially increase this
unilateral EU cost," Peter Botshchek, energy expert at CEFIC,
the European Chemical Industry Council, said.
Analysts said ETS prices would probably stagnate while the
market awaited a definitive EU decision and the economy limped
along. A strong EU deal could be a big spur, however.
"If there ends up being an agreement on (withdrawing) and
cancelling in the order of 800 million allowances, we assume
that carbon prices could increase by as much as 6 euros on
average over the 2013-20 period compared to current price
levels," Thomson Reuters Point Carbon analyst Marcus Ferdinand
Benchmark EU carbon was trading down 4.58 percent
at 6.87 euros at 1610 GMT.