Corrected: Germany backs lower permit release trigger levels under stability reserve

18 June 2014 17:57 Source:ICIS

Corrected: The below article, originally published on 18 June 2014, mistakenly referred in the third paragraph to the stability reserve releasing allowances when the EU emissions trading system is oversupplied, as opposed to withholding allowances at times of oversupply. A corrected article follows.

The German environment ministry is pushing for the European Commission’s market stability reserve to be more easily able to release emissions allowances back to the market, adding to growing debate around the proposed mechanism’s trigger levels.

The commission put forward in January a stability reserve to release carbon permits during periods of undersupply and withhold allowances when the EU emissions trading system (ETS) is oversupplied – as it is at present

“Germany believes that trigger level, based on Article 29a for the return of allowances from the reserve to the market, should be appropriately lowered,” a position paper from the German environment ministry said.

Under the commission’s proposal, if the carbon price is more than three times the average price during the preceding two years for six months, then allowances will be discharged.

Germany’s position would mean a lower price rise would lead the reserve to release supply back to the market.

The commission also proposed a second, simultaneous trigger. A quantity of 100m carbon permits would automatically exit the reserve when the number of allowances in circulation in the EU ETS in a given year falls below 400m.

A spokeswoman for the French environment ministry earlier this month told ICIS that the range which determines when emissions allowances to enter and exit the reserve is of concern to Paris ( see EDCM 16 June 2014 ).

Lobby group International Emissions Trading Association on Friday said entry and exit in and out of the reserve should be given equal importance.

The threshold is different for triggering the release of allowances into the reserve than that for allowances going out of 
the reserve.

Of the total number of carbon permits in circulation, 12% can be placed into the reserve – as long as the amount is greater than 100m.

Support for stability reserve growing

A number of nations have publicly announced support for a market stability reserve, including Belgium, France, Germany, Netherlands, Slovakia and the UK ( see EDCM 16 June 2014 ).

The German environment ministry announced last week that it would like the stability reserve to begin in 2017, four years before the start date proposed by the commission.

EUA prices rose given German support for the reserve, gaining 5.7% from 11-13 June – around the time of the news – to close on Friday at €5.71/tCO2e.

Berlin would also like the 900m temporarily delayed EUAs – under a EU ETS fix known as back-loading – to go straight into the reserve, rather than coming back to market in 2019-2020 and pressuring already-low prices.

The commission’s climate director, Jos Delbeke, said last month he hopes that countries will propose a mechanism to transfer back-loaded volumes into the reserve, in the case of an early start to the reserve.

A commission-held workshop is scheduled to take place on 25 June to discuss the technical aspects of the stability reserve proposal. Ben Lee

By Ben Lee