Commission tightens screw on carbon market

In an apparent effort to avoid another collapse of the carbon market, the Commission has set an EU-wide CO2 cap of 2.08 billion tonnes for 2008-2012, giving member states 10% less CO2 allowances than requested for the second trading period. 

On 26 October, the Commission announced that it had reduced by 10% the amount of CO2 allowances granted to member states for 2008-2012, following decisions on the national allocation plans of Bulgaria and Romania, the last two member states to have their plans scrutinised.

Considerabe emissions allowance reductions were requested from Bulgaria (37% less allowances) and Romania (20% less allowances). A number of other member states have also been told by the Commission to tighten their carbon ‘belt’ for the second round of the EU Emissions Trading Scheme (EU ETS). 

Hungary, for example, must slash allowances by over 12%, Luxembourg by 40%, and Sweden by 10%. Latvia was told to cut its cap by more than half. 

Only Denmark, France, Slovenia and the UK were not requested to reduce their caps. Germany was told to reduce its cap slightly by 2.5%, which nonetheless represents nearly 30 million tonnes of CO2 (from 482 million down to 453.1 million tonnes).

The resulting total EU emissions cap of 2.08 billion tonnes for the period 2008-2012 will lead to “a robust market with real emission reductions which will constitute an important contribution to meeting our Kyoto target,” EU Environment Commissioner Stavros Dimas said in a 26 October press release.

Current projections put the per-tonne carbon price at €22.78, according to the Financial Times.

But some carbon traders say that the market will not become truly effective for stimulating investment in low-carbon technologies and reducing greenhouse gas emissions until the CO2 price tag reaches between €40 and €50 per tonne (EURACTIV 27/06/07). 

Meanwhile, Norway, Iceland and Liechtenstein have been accepted into EU ETS, a move hailed by the Commission as “the first international agreement of its kind for emissions trading”. The EU, which is currently finalising its negotiating position for the 3-14 December UN climate talks in Bali, is hoping its ETS will serve as a template for a future worldwide CO2 cap-and-trade scheme to replace the Kyoto Protocol upon its expiry in 2013.

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