Dec. 16 (Bloomberg) -- The European Union adopted an emergency law change to alleviate a record glut of emission permits in the region’s carbon market and help prices recover from near all-time lows.
EU agriculture ministers approved an amendment to authorize the European Commission, the bloc’s regulatory arm, to postpone sales of as many as 900 million carbon allowances despite opposition from Poland. The decision taken today at a meeting in Brussels was the final procedural step on the law, which will be published in the EU’s Official Journal in the coming days.
The legislation paves the way for governments to set out the details of a rescue plan for the 53-billion-euro ($73 million) EU emissions market in a separate regulation, to be voted upon in January. The fix, known as backloading, was designed to ease oversupply and lift prices from levels the commission says are too low to encourage investment in low- carbon technologies.
EU allowances for delivery in December pared losses after the vote and traded 0.2 percent lower at 4.79 euros a metric ton on the ICE Futures Europe exchange as of 2:44 p.m. in London.
EU policy makers expected a price of about 25 euros to 30 euros when they designed the eight-year-old system, which imposes pollution caps on almost 12,000 installations owned by factories and utilities. Every year emitters in the EU ETS must surrender enough permits, which they get for free or buy, to cover their carbon-dioxide output.
The plan to intervene in the carbon market, where emission caps were set before the economic crisis that curbed industrial output and demand for pollution rights, divided the industry, members of the European Parliament and governments for 16 months. EU nations and the Parliament reached a deal to support the law to authorize the fix last month.
Backloading is a first step to strengthen the market and there is an urgent need for more substantive measures to impove the system, nine countries including Belgium, Denmark, Italy, Sweden and the U.K. said in a statement at a Dec. 10 meeting to prepare work for today’s ministerial gathering.
“We now urge the commission to bring forward, by the end of the year at the latest, proposals to perform a proper structural reform of the EU ETS, in order to give investors a clear signal on Europe’s low-carbon ambition beyond 2020 and to stimulate low-carbon investments and the most cost-effective emission reductions,” they said.
Polish Agriculture Minister Slanislaw Kalemba said today that interference in carbon prices is not needed and backloading is a “dangerous idea” to shift the ETS away from a market- oriented approach. The central European country, which relies on coal for about 90 percent of power production, has opposed the measure since it was proposed in July 2012.
In the next stage, member states are due to decide in January about the details of backloading. The exact dates and annual volumes of allowances to be backloaded will be included in an amendment to the EU regulation on carbon-permit auctions, to be voted by the Climate Change Committee, which includes representatives of national governments.
Most member states at the last meeting of the committee spoke in favour of delaying 900 million permits over three years starting in 2014, the commission said last week. Under their preferred option, the amount of permits to be delayed in 2014 may be below the 400 million originally sought by the commission in the first year of the market fix. The volumes to be postponed in 2015 and 2016 wold be adjusted from 300 million permits and 200 million permits, respectively.
The commission needs to submit a formal proposal on the details of backloading to member states before the vote, whose exact date is yet to be set. Once adopted, the measure will become subject to a scrutiny by EU governments and the European Parliament. The commission has the right to seek a shorter scrutiny period than the typical three months.
--Editors: Jones Hayden, Peter Chapman