Thirteen of Europe’s biggest energy companies have sent a joint letter calling on the EU to "back-load" 1.4 billion carbon dioxide allowances in a bid to bolster the flagging price of carbon in the EU’s Emissions Trading System (ETS).
Their move comes as lobbying by energy-intensive industries against strong measures to bail out the carbon market in a forthcoming EU proposal reaches a critical stage, analysts say.
The 13 firms – including Shell, E.On, Statoil, Alstom, Dong Energy and General Electric – describe a fully-functioning ETS as the “main policy” for achieving the EU’s ambitious goal of an 80-95% cut in carbon dioxide emissions by 2050.
“We therefore call on you to bring forward an immediate proposal to back-load the timing of EU ETS auctions,” they say. “Your proposal should reflect the European Parliament Environment Committee’s position calling for the withdrawal of 1.4 billion ETS Allowances.”
‘Back-loading’ is a short-term measure to stagger the release of carbon allowances for auction – without affecting the total number eventually released – so as to manipulate the carbon price to a level at which it can create incentives for low-carbon investments.
Isaac Valero Ladrón, spokesman for Climate Action Commissioner Connie Hedegaard, welcomed the companies' call for it.
“Businesses associations and companies are betting on innovation and competitiveness. This is the way to go to boost growth and jobs in Europe,” he told EURACTIV.
“This is why the Commission will present before the summer break a review of when allowances are auctioned in the third phase of the EU ETS. At the same time, we will also present long-term structural options to strengthen the carbon market.”
Creating investment incentives
A carbon price of €25-€30 per tonne had been thought the minimum necessary to spur low-carbon investments, but earlier this year the price collapsed to a record low of near €6 per tonne due to an oversupply of credits, recession, and uncertainty over the long-term climate investment outlook.
It is currently languishing at around €8 a tonne.
EU energy and environment ministers agreed to complete a review of measures to buoy the carbon price by this summer, at a council meeting in Denmark in April.
“There is a tendency [of] much more allowances going into the market in the early phase, rather than the later stage,” Hedegaard said at the time. “We think it's time to look into whether that makes sense.”
Officials within Hedegaard’s climate directorate see back-loading as a form of “good house-keeping”, if coordinated with the EU’s Climate Change Committee, while taking macro-economic developments and market conditions into account.
However, the reaction to the ‘back-loading letter’ from sections of Europe’s energy intensive industrial sector was negative.
Unlike the 13 energy companies they argue that a higher carbon price would make them less competitive, and increase the risk of ‘carbon leakage’ – or the relocation of carbon-intensive industry to less-regulated areas outside the EU.
“We don’t think that there should be a partial review right now focussed only on the carbon price, and we would like to keep the [ETS] instrument as a cost-effective way to reach an emissions reduction,” said Robert Jan Jeekel, energy and climate change policy director of Eurometaux, the European non-ferrous metals federation.
A strong carbon price was “not an aim” of the ETS, he told EURACTIV. “It is a result of the scheme.”
However, the European Commission and at least 13 major energy companies disagree.