Think-tank calls for CO2 auction floor, eyes 15-euro level

Point Carbon News - article online
Tuesday 13 March 2012

EU carbon permits to be auctioned next year should only be sold at a level agreed by lawmakers, the report said, suggesting that a politically feasible floor could be 15 euros in 2013, rising by a euro a year to reach 22 euros in 2020.

The report said a reserve price was needed alongside a set-aside to help secure hundreds of billions of euros of investment in low carbon technologies.

“Reserve price auctions could remove the downside risk and restore credibility to the underlying direction of travel,” the report said, referring to the EU’s legally-binding 2050 goal to cut emissions 80-95 percent.

It said both the reserve and the set-aside could be implemented quickly by tweaking existing legislation without requiring a new EU Directive, a process that could take as long as two-three years.

But the report added that the bloc needed to start urgent negotiations to set 2030 EU emission targets and ETS caps, which it said could be finalised by 2015.

EU member states are split on whether to cut supply of carbon permits to prop up prices and over a 2030 target.

GOVERNMENT COFFERS

UK-based Climate Strategies said it was important for governments, as well as corporate emitters and financiers, to be able to see more clearly how much cash could be raised through EUA auctions.

“Governments around Europe need revenue and it is impossible to budget on the basis of auction revenues which could collapse if economic conditions become even bleaker.”

It said recent analyst forecasts that EUA prices would remain below 10 euros this decade means permit sales would only reach 50 billion euros over the next eight years.

This is less than a third of the 150-180 billion euros forecasted by the European Commission in 2010.

The report also said a reserve price could help prevent a ragged coalition of national policies designed to boost low carbon investment, such as the UK’s floor fee mechanism.

FLOOR MOMENTUM

The European Commission, which devises EU-wide policy, does not currently support any form of direct carbon price intervention though last week a senior Commission advisor spoke about the long-term appeal of setting a minimum level.

But Climate Strategies said academic studies increasingly backed price controls and said the EU was isolated in its use of a floating price in its ETS, by far the world’s biggest carbon market covering around half of the bloc’s greenhouse gas emissions.

“Floor prices are now a feature in the U.S. east coast, Californian and Australian cap-and-trade systems, and the EU ETS is now alone in not having such as mechanism,” it said.

In June last year, Climate Strategies co-authored a study that rejected the idea of a set-aside, saying the measure would be too hard to get agreed amid fierce opposition from industry groups.

At the time, front-year EUA prices were trading around 16.50 euros, more than double today’s levels as prices have plunged on a worsening economic outlook and an abundance of eligible offset supply.

By Ben Garside – This e-mail address is being protected from spambots. You need JavaScript enabled to view it