EXCLUSIVE / Four Fortune 500 companies have written to the UK’s energy minister, Ed Davey, calling for the rapid cancellation of two billion carbon allowances as EU energy and environment ministers begin two days of high-stakes policy talks in Brussels.

The CEOs of four companies – Alstom UK, Shell UK, Doosan and SSE – all warn that the six-year wait for light reform of the Emissions Trading System (ETS) proposed in the EU’s 2030 climate and energy package, neglects an “immediate problem” of carbon credit over-supply.

“Two billion allowances are suppressing cost efficient carbon abatement and delaying investments in energy efficiency and lower carbon processes, products and services for the medium and long term,” says the letter, which EurActiv has seen.

“We would strongly support the UK driving action on additional measures to deal with the surplus on the system before 2021, including permanent set aside of EU ETS allowances,” the captains of industry continue.

The EU’s proposed ‘market reserve’ facility for the ETS would steady carbon prices by withdrawing around 100 million carbon allowances, as and when needed. 

But few analysts expect this to have an effect on carbon prices sufficient to deter coal use or incentivize budding industries, such as carbon capture and storage (CCS).

In the absence of stronger regulatory measures, carbon prices are seen as the primary driver of European decarbonisation. But even though spot carbon prices climbed back above €7 a tonne on Friday (28 February), this is far below the €30 a tonne price reached shortly after the system’s launch.

‘Lost decade’

A representative of the French energy company Alstom said that along with delays in agreeing the EU’s energy and climate targets, the low carbon price was risking a ‘lost decade’ for green-collar industry.

“It has a huge effect on business,” she told EurActiv, “more than you can imagine. Companies draft business plans with very long time horizons so if we lose even a few months it can have a major impact. Industry cannot afford a delay in action.”

“The market stability reserve will provide the stability the ETS needs, but it needs to start well before 2021 in order to tackle the oversupply on the ETS which has been assessed to reach over two billion allowances in 2020.”

The Confederation of British Industry on Friday (28 February) did little to dispel the gloom around the carbon market, with a call for a price freeze on the UK’s carbon price floor.

Neil Verlander a spokesman for Friends of the Earth called the news “disappointing”.

“The carbon price floor isn’t perfect but weakening it would send a very bad signal to investors,” he said.