The EU executive has indicated in consultations on the forthcoming regulation on allowance auctioning for the 2013-2020 period that the start of auctions will be postponed, sources told EurActiv.
The revised directive on the EU's emissions trading scheme (EU ETS; see EurActiv LinksDossier) foresees that auctioning of allowances for the period 2013 onwards will start by 2011 in order to ensure that carbon and electricity markets function properly.
But the Commission now appears to be sceptical about starting futures auctioning, preferring to wait until 2013 for spot trading.
The news alarmed the European electricity industry, which is responsible for 60% of the emissions covered by the EU ETS and the only sector to face full auctioning from 2013.
As a result, power industry association Eurelectric sent a letter to national experts meeting today to discuss the forthcoming regulation, warning that European electricity customers might face additional costs of up to €50 billion by 2012.
The Commission's proposals would "significantly increase the risk of serious disruption of the EU carbon market and also of the electricity market in the lead-in to ETS Phase III," the letter said. It pointed out that electricity companies contract around 80% of their power generation in advance.
Postponing auctioning until the beginning of 2013 would deny electricity companies the opportunity to cover CO2 exposure on their forward electricity contracts, Nicola Rega, environment and sustainable development advisor at Eurelectric, told EurActiv.
"This would create scarcity in the market in terms of liquidity. As a side effect, we might end up having prices of allowances that would be peaking towards 2012, beginning of 2013," he said.
Eurelectric said that even by the most optimistic estimates, demand for EUAs will exceed supply by around 450-650 million by the end of 2012. By then, carbon prices could increase by as much as €46-€65 per EUA without an early supply of allowances for the third trading period, Eurelectric warned.
The imbalances will start to emerge as soon as mid-2011, making it "absolutely crucial" that electricity companies obtain access to Phase III allowances from then on, the letter stressed.
Member states disagree about level of harmonisation
The Commission is set to propose the draft regulation by mid-2010, but as yet it is far from clear whether the system for auctioning will be harmonised at EU level.
While the Commission is talking about harmonised EU auctioning, a position shared by France, member states like Germany and the UK are in favour of strictly national systems, according to French Senator Fabienne Keller.