21 December 2011
The European Parliament’s environment committee has voted to cut the supply of EU carbon allowances, causing the carbon price to climb as high as €9.75, a 32% increase on Monday’s close.
According to the proposals, which were made as amendments to the draft EU energy efficiency directive, the European Commission should amend the law governing the EU Emissions Trading System (ETS) in order to withhold a substantial number of EU allowances (EUAs) from Phase III (2013-20) of the ETS. A clear majority of the committee backed this amendment, according to reports, but another vote on the quantity to be set aside – 1.4 billion – was passed by just one vote.A separate amendment to steepen the rate at which the carbon cap is tightened was warmly welcomed by environmental group WWF. The committee’s proposal to increase the annual reduction factor to 2.25%, from 1.74%, would eliminate more than 8.5 billion EUAs by 2050, it said.
Jason Anderson, head of climate and energy at WWF's European Policy Office, said the move was an “important step towards a key reform of the ETS” that would “guide Europe’s industry towards low-carbon investments”.
He said the vote “recognised that the EU ETS is in need of urgent repair. With carbon prices at an historic low, we need to find all possible ways to avoid the risk of locking our society into high-emitting infrastructure for decades to come”.
Emmanuel Fages, Paris-based analyst with Société Générale, said “this is still an early stage in the legislative process,” but he noted that “nonetheless, given the price action we are seeing – up 30% – it seems the market is attributing a good probability of success”.
He said that “part of the [volatility] is also probably due to the lower liquidity as we are close to the end [of ] year break.”
The proposals are now scheduled to be voted on by the Parliament’s industry committee – the lead committee on the issue – on 24 January and then would have to be approved by the whole Parliament and the Council of Ministers, representing member states, before they could become law.
The EUA contract for December 2012 delivery was trading at €8.83 as this article was published, just after midday GMT. Last Wednesday, the front-December contract settled at €6.45, a record low for the 2008–12 phase.
Source: Philippa Jones, Environmental Finance