EU plan to change phase III auctioning rules by year end
The current auctioning regulation for phase III of the emission trading system (ETS) will be revised by the end of the year, EU climate-change commissioner Connie Hedegaard said on Thursday.
The new proposal will be developed by the European Commission, alongside work to prepare an annual report on the functioning of the ETS.
The report was due only next year but will now be finalised in a couple of months, the Commissioner said, speaking after a EU environment ministers' informal meeting in Denmark. "Difficult and unexpected macroeconomic circumstances arising from the economic and debt crisis complicate this aim, as they have substantially altered the supply-demand balance in the European carbon market for the early years of phase III," the commissioner said in a statement. "I have therefore asked my services in DG Climate Action to bring forward the first annual report on the ETS."
The phase III auctioning regulation proposal will be presented to the climate-change parliamentary committee by the end of the year.
Hedegaard also said that there are "much more allowances allocated in the early phase than later" within the period 2013-2020.
The commission is therefore now working to see "whether that makes sense," she said, which may hint at a possible cut in supply of allowances.
Hedeggard stressed that Brussels has often "underlined that there is a problem with too many allowances in the system for a number of reasons."
ETS, pillar of EU policy
At a press conference after the meeting, Danish energy minister Martin Lidegaard and Hedegaard agreed that the ETS is still to be considered as a "cornerstone of EU climate change policy".
The Presidency has focused on the Energy Efficiency Directive (EED), which aims to lower emissions in the region. This has already had a bearish impact on carbon, by potentially exacerbating an existing oversupply in carbon allowances. Critics have warned that policy overlap undermines the ETS as a flagship tool to cut emissions.
But Lidegaard also added that discussions about how to safeguard the integrity of the ETS was good and productive, although "It is a complicated matter."
He said that, although views on how to support the system differ, both the ministers and the industry agree on the need to reinforce it to cut emissions and incentivise low-carbon investments in the future.
The meeting fell short of reaching any conclusions on the ETS, however.
Set-aside and Polish position
Speaking to journalists after the meeting, Hedegaard also stressed that the Commission's position on the set-aside has remained unchanged.
Any further decision on the issue will be taken only after the conclusion of talks on the EED, on which the next meeting between EU institutions is scheduled for 24 April (see EDCM 11 April 2012).
The Commissioner has also said that the single positions from member states were not discussed, when asked about the harsh opposition by Poland to the set-aside plan (see EDCM 17 April 2012)
While the Polish state has led opposition to the set-aside, it appears that the country's market participants polled by ICIS do not fully back this government move.
One Polish trader said local opinion was divided on whether the set-aside was a good idea, but that most market participants thought some kind of reduction in the supply of emissions allowances was inevitable.
The trader was concerned that if the set-aside went through, it would push up Polish power prices, but it would strengthen the incentive for companies to invest in renewable generation.
Another trader said that Poland will become the most expensive electricity market in Europe if the set-aside proceeds. "At the moment there is considerable risk premium in Polish prices reflecting that." MM/KB
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