Wind-Energy Lobby Sides With Germany on Fast EU CO2 Fix

March 26, 2014 by  
Filed under Green Energy News

European wind-energy producers
joined Germany and Denmark in urging the European Union to start
a reserve to automatically tighten supply of emission permits in
2016, five years earlier than proposed.

The European Wind Energy Association also urged the EU to
allow putting a bigger number of allowances in the proposed
reserve to bring a record surplus of permits in the market down
faster, according to its position paper. To ensure scarcity in
the world’s biggest cap-and-trade program, the lobby advocates
permanent cancellation of excess allowances before the start of
the next trading phase in 2021.

The EU’s 28 nations began talks last month on the draft
measure to introduce a market-stability reserve for the $72
billion Emissions Trading System, the bloc’s key policy tool to
combat climate change. The plan to begin automatic supply curbs
or injections to avoid imbalances requires qualified-majority
support from governments and majority backing from the European
Parliament to be amended and take effect.

“If a high power price is realized only after 2021, the
ETS will have no impact on investment decisions in the power
sector before then,” according to EWEA, whose members include
Alstom SA (ALO) and Vestas Wind Systems A/S. (VWS) “The EU could lose its
technology leadership in renewables and become locked into high-carbon assets.”

Record Lows

The stability reserve plan was proposed in January as part
of a strategy on climate and energy policies for 2030 and aims
to strengthen the carbon market after prices tumbled to record
lows earlier this year amid oversupply. The ETS, started in
2005, imposes decreasing pollution caps on about 12,000
installations owned by power producers and manufacturers
including EON SE (EOAN) and ThyssenKrupp AG. (TKA) Each year they must
surrender enough permits, which they get for free or must buy at
auctions, to account for their discharges or pay fines amounting
to 100 euros ($138) a ton.

The cap-and-trade program had an excess of about 2.2
billion allowances at the end of last year, according to
European Commission estimates. Coupled with an economic crisis
and inflows of cheaper imported emission credits, the surplus
helped drive the price of EU carbon allowances to a record low
of 2.46 euros a ton in April. The permits rose 1.4 percent to
6.01 euros on the ICE Futures Europe exchange as of 2:15 p.m. in
London today.

The supply of permits will be reduced if there is an
accumulated surplus of at least 833 million metric tons,
according to the draft law on the stability mechanism. If the
surplus fell below 400 million tons, the EU would begin
returning allowances to the market from the reserve, a provision
that EWEA opposes.

Additional Barriers

The wind lobby group called for a removal of the rule on
re-introduction or at least additional barriers for a return of
permits, for example through a combination of more stringent
volume and price thresholds, according to the position paper. It
also seeks an amendment to the provision on reducing supply.

“With the commission’s proposal for taking 12 percent of
all allowances in the circulation and with a surplus of 2
billion tons, only 240 million is taken into the reserve,” it
said. “EWEA calls for a more ambitious and a considerably
higher percentage than 12 percent.”

EU member states were split on the proposal by the
commission, the EU executive in Brussels, in their first debate
about the future climate and energy framework during a March 3
meeting of environment ministers in Brussels. Nations including
Germany and Denmark advocated early implementation of the
mechanism, while six central and east European countries led by
Poland urged more analysis of the plan’s effect on the economy.

Permanent Mechanism

To be approved by member states, the draft law will need
260 out of 352 government votes in the EU weighted-ballot
system, under which Germany has 29 votes and Poland 27. The
measure was designed as a permanent mechanism to follow the EU
emergency market fix known as backloading, which will withhold
900 million allowances at auctions between 2014 and 2016 and
return them to the market in 2019-2020.

While backloading will provide short-term relief, the
oversupply will swell to 2.6 billion permits after the
backloaded permits are reintroduced, according to EWEA. Surplus
allowances should be permanently canceled before the start of
the next trading period in 2021, it said, urging scarcity in the
cap-and-trade emissions program to provide a level playing field
for renewable energy technologies.

“Only with a robust reform, including an early implemented
market stability reserve and a removal of surplus allowances, EU
decision makers can restore full confidence in the EU ETS,”
EWEA said. “Anything else would be too little, too late.”

To contact the reporter on this story:
Ewa Krukowska in Brussels at
ekrukowska@bloomberg.net

To contact the editors responsible for this story:
Lars Paulsson at
lpaulsson@bloomberg.net
Jones Hayden, Andrew Clapham

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