mardi 3 mars 2015

Carbon trading scheme: triggering the market

Today, we discuss a new framework to be adopted by the European Parliament to boost the carbon market. Translation from "Les Échos".

EU carbon trading scheme: The European Parliament intends to boost the market

A new regulation with an effective date in late 2018


The European new mechanism would regulate the scheme by withdrawing carbon emission licences 
during an economic downturn and, conversely, would award additional ones in case of growth. 

Tuesday, the European Parliament ruled for the withdrawal of a part of carbon licences right from the end of 2018.

Tuesday, the members of the Environment Commission of the European Parliament found an agreement on reforming the carbon trading scheme. A broad majority ruled for the implementation of a “market stability reserve” in late December 2018, namely three years earlier than the date suggested by the Commission.
This new mechanism would regulate the scheme by withdrawing carbon emission licences during an economic downturn and, conversely, would award additional ones during growth.

“Rights to pollute”

The European Union hopes to bring back to life a trading scheme launched ten years ago, to implement the targets set by the Kyoto protocol in the field of greenhouse gases emission reductions. It’s the major system of its kind in the world but it is now in doldrums. Excessive licence allocations have always hindered the development of this market.
The “rights to pollute” rate has fallen by around 75% since the 2008 crisis and now amounts to something like €5-7 per ton; this amount is by no way an incentive to push the 11,000 plants to cut their emissions. These plants prefer to pay the rights.
In order to save the market, in July 2013, Brussels froze 900 million tons of quotas up to 2020. Tuesday agreement would allow their allocation in the sustainable reserve.

An agreement must be settled between euro MP and Members States

Now, this reform needs to be approved by the Members States to be set in full force. It won’t be easy, as EU members don’t face the same economic conditions. France, Great - Britain and Germany consider that the reserve should be operational as soon as 2017, whereas Poland wishes a regulation for 2021, as the country is heavily dependent on coal to meet its energy demand.
According to Bloomberg, eight Members States wrote a letter to Jean-Claude Junker, the Commission’s President, to give their feedback about their concerns. Cyprus, Bulgaria, Croatia, the Czech Republic, Hungary, Lithuania and Romania join Poland, considering that “controlling the number of licences to be sold by auction may lead to significant economic, social and financial consequences for Members States and for a sector ready to “carbon leaks’, namely ready to outsource its output, because of carbon constraints.
This dispute may rise again, as the Commission expects to launch a second wave of reforms in the framework of the Energy Union, to modify the scheme bases in depth.