400 million carbon allowances from EU ETS will be backloaded in 2014

The European Parliament approves measure to deal with the excess credits in the market

Writen on 24/02/2014

By 306 votes in favour, 276 against and 14 abstentions, the European Parliament approved an early implementation of backloading the EUAs emission allowances – as the carbon credit from the EU ETS are called – an action considered by analysts as essential in order to raise the prices of carbon and maintain the effectiveness of the market to more efficient and cleaner methods of industrial production and power generation.

With the approval, 400 million credits will be withheld in 2014, adding another 300 million in 2015 and 200 million in 2016. All these allowances will be returned to the market by 2020.

“It´s the end of two years of uncertainty for the market participants. However, this result was expected and most likely has already reflected in the carbon price. Thus, the 2014 value should target € 6,5/t € 7/t”, explained Mr. Marcus Ferdinand, responsible for the EU ETS analysis to Thomson Reuters Point Carbon.

In recent weeks, the EUAs increased continuously, reaching the highest value in the last twelve months, € 5,82/t.

The restraint must now be approved by the European Council to adopt the measure, which has been scheduled for 24 February. “This last step is just a bureaucratic issue”, says Mr. Haege Fiellheim, senior policy analyst at Thomson Reuters Point Carbon.

The European Union has been discussing what to do to end this EU ETS crisis. The European carbon market, the largest in the world, suffers from the falling prices resulted from regulatory failures and economic recession, which slashed industrial production and, consequently, the demand for emission allowances.

Just to get an idea, in November 2010, the EUAs were trading at more than € 15, while earlier this year came to be sold for only € 4,64/t.

The EU ETS works by placing a cap on greenhouse gases emissions for various industrial sectors, including steel, cement and power. Those who exceed such limit must buy the allowances. However, if carbon price is too low, as in recent months, it is cheaper for companies to pollute and buy credits rather than investing in improvements in their production system.

And through the Parliament, a backloading measure was approved, thus becoming a permanent mechanism in the EU ETS, and it can be used every time if there is an imbalance between credit supply and demand.

However, this decision still faces many obstacles, mainly in opposition from industry groups, who see in it an excessive political intervention in the EU ETS. They fear that the allowances would be continuously maintained at artificially high prices, impacting costs and affecting the European competitiveness.


New goals

Through this new climate goals approved by the European Parliament, the greenhouse gases emissions must be cut by 40% over the 1990 level, the renewable sources share in the European matrix must but at least 30% and the energy efficiency must improve by 30%.

All these goals must be considered by the European Council in March, unlike the backloading, it´s not so sure that they will be adopted.

Many member-countries from European Union are already with high energy prices, such as Germany and Poland, and therefore, there is resistance against what was decided in the Parliament.

“Doubling the goal of emission reduction is not realistic. We´ll be putting at risk the competitiveness of European industry”, criticised Mr. Konrad Szyma?ski, polish parliamentarian.

According to Connie Hedegaard, EU Climate Commissioner, new goals are viable and demonstrate the ambition of the block to lead the world towards a low carbon economy.

“I just hope that the European governments understand that”, said the Commissioner on his Twitter account.

In turn, environmental groups believe that the targets are too weak, and that the EU will achieve them without making any real effort.

In a letter sent to the German Chancellor Angela Merkel, 23 NGOs and institutions requested that the reduction in emissions would be 55%.

“The 40% will become an artificial limit, discouraging investments in clean energy and threatening the creating of 100 thousand jobs. To align the warning of science, the EU should adopt 55% as target, and so keep global warming below 2oC”, states the document.


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