Energy companies push for carbon market bailout

Le charbon revient au coeur du mix énergétique européen [Shutterstock]

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.

Their letter, which EURACTIV has seen, also argues that ETS auction revenues must play an “important role” in funding low carbon innovations, in which many of them have invested.

“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. 

Energy-intensive industry

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.

"Pre-emptive short-term measures would create a precedent, resulting in greater uncertainty, which has to be avoided and could have major repercussions for EU industry, which is already under strain from the economic crisis," a widely circulated letter from employers' federation BusinessEurope said.

Eurofer, the European steelmakers association reinforced the energy-intensive industry message, with a press release excplaining that they were against an EU setaside proposal because "We are against a set-aside because: "the Emissions Trading Directive makes it clear that its 21% GHG reduction objective should be achieved in a cost-effective manner; it interferes in the market system and puts the credibility of the system at stake; a set-aside will lead to a further distortion by the ETS within sectors. Some steelmakers will have no unused allowances from the 2nd trading period when the 3rd period starts in 2013. These - having had a high degree of capacity utilisation during the crisis - would be punished by an artificial increase of the carbon price; a set-aside will lead to an increase in power prices and by this further jeopardizes the competitiveness of electricity intensive sectors such as electric arc furnaces."

With a turnover of some €90 billion in 2010, the EU's Emissions Trading System (ETS) is the world's largest carbon market. Around 80% of it is traded in futures markets and 20% in spot markets.

The ETS aims to encourage companies to invest in low-polluting technologies by allocating or selling them allowances to cover their annual emissions. The most efficient companies can then sell unused allowances or bank them.

After a series of VAT "carousel" and "phishing" frauds in 2009, the European Commission proposed tighter security measures. But a number of member states declined to implement them because they said they could not afford to.

One Commission official pointed out that tens of thousands of euros spent on security could prevent millions of euros in losses.

  • July 2012: EU will come forward with proposals to increase the carbon price in a reivew of the ETS
  • 2013: Phase III of the ETS is due to begin
  • 2020: End of Phase III of the ETS

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