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Dutch back auction reserve price on CO2 to fix ETS

26 Apr 2013 20:21:25 | edcm

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The Netherlands favours putting a fixed price on carbon permits offered to the market in auctions as a way to address the problems facing the EU's emissions trading system (ETS), it emerged on Thursday.

A Dutch agency said an auction reserve price would be the best way to protect the ETS from external influences such as an economic crisis and help the market act as a signal for clean investment. Europe's economic woes are largely credited with fuelling the oversupply that has depressed the price that polluters pay to cover their emissions.

The Netherlands' environmental assessment agency (PBL) carried out an evaluation of the current system on behalf of the government and has called for a reserve auction price of about €25/tonne of CO2 equivalent (tCO2e) by 2020 and €50/tCO2e by 2030.

Principal tool

At present, there is no auction reserve price. In phase III of the ETS, auctions are the principal tool for offering allowances to the market. On Friday, a German phase III auction settled at €2.95/tCO2e, according to auction platform EEX.

Jefferies Bache carbon analyst Matthew Gray said on Thursday that his phase III average-price forecasts are for €13/tCO2e if the back-loading of allowances takes place and for €2.50/tCO2e without back-loading and structural reform of the trading system.

The agency concluded that an auction reserve price would make CO2 prices more predictable and provide greater certainty for low-carbon technology investments.

Although a (higher) reserve price could lower production in some sectors, it would allow auctions to raise more money and, in turn, reduce the subsidies needed to advance sustainable energy, its researchers said.

The Dutch carbon registry said "reform" is needed because a "persistently-low" CO2 price has eroded the signal for renewable and energy-efficient investment to reach low-carbon goals by 2050.

According to the registry, most options for structural reform tabled by the European Commission (see separate story) have failed to address this effectively and have disadvantages, making the reserve auction price its preferred method of strengthening the ETS.

The registry said it has identified some shortcomings in the commission's proposed measures, ranging from clashing with other, sector-specific policies to failing to flexibly respond to future changes in demand or supply prompted, for instance, by economic developments. Marie-Louise du Bois

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