Prices of carbon on the European market jumped as much as 30%
Tuesday, after a European Parliament committee supported action to
withdraw permits from the market in an effort to boost prices.
An overwhelming majority of the parliament's Environment Committee
backed an amendment to an energy efficiency draft law proposed earlier
this year by the European Commission. According to the amendment, a
"significant" number of permits should be withheld from the market, in a
move that would create a shortage and increase prices.
The vote has only the value of an opinion as another committee is in
charge of steering the legislation through the European Parliament and
negotiating a final version with European Union member countries, but
the five main parties represented in the assembly backed the amendment,
increasing the chances that similar language will survive the process.
Investors consider this to be an important precedent, especially
because of the strong majority supporting it, experts said. They "think
that some elements will remain," said Emmanuel Fages, head of power,
gas, carbon and coal research at Société Générale Commodities in Paris.
The vote follows weeks of record lows for the price of carbon dioxide
on the Emissions Trading System.
The ETS is the EU's flagship tool to fight climate change by putting a
price on carbon dioxide emissions and capping their number. It aims to
encourage companies to invest in clean technologies to reduce their
emissions in the long term, rather than buying more permits to emit more
carbon dioxide. Critics, however, have highlighted that the mechanism
hasn't yet been able to push the carbon price high enough to be a
trigger for large green investment.
An allowance traded on the ETS gives the holder the right to emit one
metric ton of carbon dioxide.
Permits flirted with a price of around €9.0 a ton Tuesday, after
hitting record lows around €6.50 earlier this month, according to a
trader.
Oversupply has been the lingering problem of the ETS since its
creation, but a mix of low expectations about the EU economy and a
concrete risk of too many permits flooding the market next year have
crippled the market this month.
The record lows have raised questions about its effectiveness in
triggering long-term investments in clean technologies to reduce
greenhouse gas emissions and have prompted policy makers to start
considering mechanisms to increase prices.
The European Commission, the EU's executive body that oversees the
carbon market, has been considering ways to boost prices and an
initiative could move forward in the next six months, an official said.
One solution would be to remove some allowances from the market to
create a shortage, a measure called set-aside.
Europe's present economic and financial struggle has been preventing
the commission from making concrete proposals. Many countries see a
higher carbon price as a cost for their industries. And starting in
2013, companies will have to buy more permits that they now get for
free.
But support by the Parliament could turn out to be crucial in
supporting such a provision, especially at a time when Denmark takes
over the helm of the EU for six months.
The country, which said Monday that action needs to be taken to
resolve the low-price issue, will negotiate draft legislation with the
Parliament on behalf of the EU governments and will have some leeway in
steering the talks.
The situation is becoming so critical that even major companies,
including Royal
Dutch Shell PLC, last
week wrote to commission president José Manuel Barroso urging him to
act.
Traditionally companies haven't been in favor of higher carbon prices
because they prefer to buy cheap permits to emit carbon dioxide rather
than having to make expensive investments. Even those who may profit by
selling on the permits they don't need have been skeptical about any
direct intervention to increase prices because that would alter market
dynamics and possibly create a precedent for further interventions.
(source: Wall Street Journal)