EU talks to prop up carbon tangled in saving debate

Reuters News
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Posted: Apr 04, 2012 1:13 PM
EU talks to prop up carbon tangled in saving debate

By Barbara Lewis and Jeff Coelho

BRUSSELS/LONDON (Reuters) - The European Commission is likely to take many weeks to deliver a strategy for propping up the sickly carbon market, even though all three of the EU's decision-making bodies are set to discuss the issue in high-level talks in Brussels beginning next week.

Meanwhile, EU emissions permits hit a new low below 6 euros ($7.87) on Wednesday, and traders are impatient for a price signal from EU policymakers.

The Commission has said it would support a one-off measure to remove part of a surplus of allowances that has pushed prices down so low that they do not support low-carbon investment.

Some people in the carbon market say the Commission is bound to act this year, before the next phase of the carbon market starts in 2013.

"The stakes are too high," Sanjeev Kumar of environment group E3G said. "It's not about climate, it's more about money," he added, referring to dwindling revenues from carbon permits.

Traders have predicted that without intervention carbon prices will fall even lower, because the oversupply in the market should be sufficient to cover demand up to 2020.

"Assuming an EU wide annual growth below 1 percent, even 2020 should end up oversupplied," Kris Voorspools, a director at 70Watt Consulting, said.

The Commission could use its prerogative to come up with a proposal at any moment, but the issue has got tangled in a debate over revamping energy savings policy.

For the Danes, who hold the EU presidency, the more immediate priority has been a draft energy savings law, which has run up against stiff opposition from some member states.

On Tuesday a spokesman said the Commission stood by the idea of set-aside but concrete steps needed to wait "a bit" until after the efficiency debate.

TANGLE

Next Wednesday's talks in Brussels, which bring together representatives of the Presidency, the Commission and the European Parliament, are the first of a series, and progress is expected to be slow.

A spokeswoman for the European Council confirmed set-aside was on the agenda, although the main topic was the Energy Efficiency Directive.

Set-aside will also crop up again when Denmark hosts informal ministerial talks later this month, which are not expected to produce any decision.

"At an informal meeting, let's have an open and frank discussion. We need to get our position clear," Denmark's Minister for Climate, Energy and Building, Martin Lidegaard told Reuters.

Part of the reason the Danes want to separate the issues of market intervention from energy efficiency is the strength of Polish objections to anything that drives up the carbon price.

"Poland is quite skeptical towards set aside, but supportive to energy efficiency as such," Lidegaard said.

"The important thing for me first and foremost would look to have the energy efficiency directive actually decided upon."

Parliament agreed on a strong draft text on energy efficiency, which it said would completely close a 10 percentage point gap between existing progress and a 2020 goal to cut energy use by 20 percent.

One unintended consequence of enhancing efficiency, however, would be that demand for carbon allowances could contract even more, adding to the huge surplus.

The fact member states have been busy watering down Parliament's proposal could offer a modicum of respite for carbon prices.

A Danish proposal on energy savings that is up for debate at next week's talks is far weaker. Campaigners say it would close only one third of the gap.

"I am pleased that negotiations can finally start, but I must admit that the incoherence of governments between claiming they want to move to 20 percent savings and delivering a text with so many loopholes is stunning," said Claude Turmes, vice president of the Greens group, who steered the energy efficiency draft through parliament.

"The higher the oil price the lower the ambition of governments. What a contradiction!" ($1 = 0.7623 euros)

(editing by Jane Baird)