Concern grows as ETS price hits record low

The price of carbon in the EU’s emissions trading scheme (ETS) fell below five euros on Monday (21 January), its lowest level since the ETS was launched in 2005.

The drop prompted the European Commission to urge member states and MEPs to adopt its proposal for supporting the price.

When the ETS was designed, it was expected that the price of allowances, which companies must purchase in order to emit greenhouse gases, would be around €30. The dramatic decline is the result of reduced economic activity in the current crisis, combined with an overallocation of free allowances. As a short-term fix, the Commission has proposed postponing the auction of 900 million allowances, deferring the offer from the 2013-15 trading period to 2019-20.

But the proposal, made last July, has run into unexpected resistance from member states and MEPs reluctant to see the Commission taking powers to intervene in the market. The Parliament’s environment committee, which will debate the issue today (24 January), is thought to be evenly split on the issue.

Patchwork

Speaking on Tuesday (22 January) at a debate organised by CommentVisions, of which European Voice is a partner, Connie Hedegaard, the European commissioner for climate, warned that the ETS is at risk of collapse. “If you get a very low carbon price, or maybe no carbon price, then the alternative is a patchwork of 27 different systems,” she said. “We risk a nationalising of energy and climate policies.”

Karolina Ostrzyniewska, Poland’s deputy permanent representative, who was also on the panel, reiterated her country’s opposition to the ‘backloading’ proposal, claiming that the market is functioning properly. By contrast, Italy and France have signalled support for a postponement, leaving all eyes on the UK and Germany, which have not yet announced a position.

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The German government is divided, with the environment minister, Peter Altmaier, in favour and the economy minister, Philipp Roesler, against. A regional election on Sunday (20 January) failed to clarify the situation, because although Roesler’s FDP party did better than expected, it still lost. A very poor showing by the FDP might have forced Roesler to resign, but this is now less probable.

Hedegaard had wanted approval by the end of 2012 for authorisation for Commission intervention. She warned that opponents “are toying with something very, very dangerous”. There is now concern in the Commission that the political difficulties encountered in the debate over a short-term fix could make later proposals for a long-term fix impossible.

Ahead of today’s debate, Green climate spokesperson Bas Eikhout said the ETS is now “at risk of total collapse”.

“Despite more than a year of dramatic warnings about the sinking carbon price in the emissions trading scheme, prevarication by EU policy makers has pushed the ETS to the brink,” he added.