German ministries’ spat over back-loading depresses carbon prices

Carbon prices were weaker on Wednesday as uncertainty about the future of the EU back-loading proposal continued to weigh on values one day ahead of a meeting at which it is to be discussed by member states.

At the centre of the regulatory uncertainty is a spat between two of Germany’s federal ministries, with one opposing and another backing the proposal.

The rift between the two springs from disagreement about the type of market intervention considered the most appropriate amid Europe’s difficult economic environment.

Responding to a question in parliament on Monday, Holger Schlienkamp, director of communications for Germany’s Federal Ministry of Economics and Technology, said minister Philip Rösler continued to oppose the curbing of the carbon supply to protect the competitiveness of German industry.

He said the back-loading would result in a higher carbon price, thus raising producer costs within the bloc against those in other areas where industry is exempt from having to pay for its pollution.

Schlienkamp highlighted the difficult economic environment within which European industry now operates, saying it is expected to worsen and that protecting jobs is of primary importance.

However, he confirmed that his ministry is continuing to discuss the matter with the Federal Ministry for Environment, which has repeatedly said it is in favour of the back-loading proposal.

Meanwhile, a spokesman for the Ministry of Environment confirmed on Wednesday by e-mail that environment minister Peter Altmaier sent a letter to Rösler on Monday, calling on him to change his position and favour the back-loading proposal.

Analysts including Gray have warned that Germany needs internal agreement to back the proposal if it is to succeed at EU level.

“If the two fail to agree, Germany will abstain on the CCC vote in 2013,” Gray said in a briefing note on Wednesday.

He added that, “if Germany cannot agree, the vote will undoubtedly fail as smaller member states will probably refuse to vote without commitment from the EU’s superpower”.

Such an outcome would see carbon prices, which have already suffered losses amid the uncertain supply outlook, shed more value (see EDCM 30 November 2012).

Market participants polled by ICIS said they are hoping for more clarity on the matter on Thursday, when the EU’s Climate Change Committee (CCC) is due to meet and member states are expected to clarify their respective positions on the proposal.

However, a CCC vote on the proposal has already been postponed until 2013. MLDB