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Push for CO2 floor price underway in Germany and UK

07 May 2013 16:14:00 | edcm

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Correction: In the story headlined "Push for CO2 floor price underway in Germany and UK" published 3 May 2013 , in the lead paragraph please read ...Politicians in Germany and the UK... instead of ...Members of the German and UK governments.... A corrected story follows:

Politicians in Germany and the UK are calling for a carbon floor price to be implemented at EU level in a bid to ensure the emissions trading system (ETS) acts as a signal for low-carbon investment. The calls are a response to a recent failure to shore up prices at EU level, and would significantly increase costs for polluters if they win wider support.

Germany

In Germany, widely considered the EU's most powerful member state, a member of the Green Party has said that there may be support for such an EU-wide carbon floor price.

"Some members of the German Green party are discussing whether proposing the introduction of a carbon floor price that could start in Germany and then be proposed at EU level," a party source who did not want to be named said. "Some in the party have identified [€15/tonne of CO2 equivalent (tCO2e)] as an appropriate level," the source added.

This level is both above the UK floor price as well as significantly higher than the current price, which is around €3.00/tCO2e for the benchmark EUA contract.

If Germany would implement such a carbon floor price, this would hit the country's utilities, including energy giants such as E.ON and RWE, especially hard because they are known to be the shortest and thus the biggest buyers in the market.

UK

A UK parliament committee said on Thursday in a report that the EU should set a carbon floor price and tighten the cap.

The report, published by one of six sub-committees of the UK House of Lords, scrutinises EU proposals on energy, the economic crisis and other factors that have undermined the ETS as an emissions-reduction tool.

"The uncertainty in revenues makes it impossible for governments to budget effective use of ETS revenues, and the price collapse has reduced the major source of expected EU finance for [carbon capture and storage] CCS," the report said.

It advocates new European-wide solutions to still meet EU decarbonisation goals within this context, such as tightening the cap and introducing a carbon floor price.

The UK already has such a carbon floor price, but calling for an EU-wide one could help the country's industry stay competitive in the absence of back-loading. Otherwise, figures suggest that UK polluters could pay for carbon permits more than triple that paid by their competitors elsewhere in Europe because of the recently imposed British carbon top-up tax (see EDCM 18 April 2013).

The UK implemented the top-up tax on 1 April to keep carbon costs from plummeting for its power sector.

Carbon price support in the UK is set two years in advance, so it can diverge widely from the volatile carbon market. The 2013-14 rate was announced in 2011, with the 2014-15 rate stated in the government's 2012 budget at £9.55/tonne of CO2 equivalent [tCO2e], or €11.22/tCO2e, almost four times the potential rate for Europeans. The UK rate will then be almost doubled, at £18.08/tCO2e, for 2015-16.

In addition, the committee called for structural reform to be agreed by 2015 in advance of the Paris international climate change negotiations. This should then define EU energy and climate change policy long-term, in particular after 2020, it said.

This is in line with European Commission plans to decide 2030 climate goals in the next 2½ years (see EDCM 17 April 2013).

Matilde Mereghetti, Silvia Molteni and Marie-Louise du Bois

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