EU yet to agree on next steps of CO2-law fix

The European Union has yet to decide what procedural steps to take next in talks about a draft change to the bloc’s carbon law after some governments voiced uncertainty about the plan, an EU presidency official said.

A number of nations expressed reservations about an amendment to the EU emissions law during initial discussions in the past two weeks, according to the official, who declined to be identified, citing department policy. Those member states are still scrutinizing the proposal by the European Commission, which aims to enable the EU to curb an excess of carbon permits as of 2013, the official said.

At stake are prices in the bloc’s emissions-trading system, which fell to a record low in April after the economic crisis hurt industrial output, boosting the glut of permits to almost half of the average annual pollution limit in the program.

Cyprus, which holds the EU’s rotating presidency, is in talks with the commission, the bloc’s regulatory arm, and governments to decide about the next steps, the official said. The amendment may need more discussions at the level of Brussels-based climate experts representing national governments, two EU diplomats with knowledge of the matter said last week.

Under pressure

EU permits for delivery in December fell as much as 3 percent to 7.24 euros ($9.35) a metric ton on the ICE Futures Europe exchange in London today. The contract has extended its losses to 39 percent in the past year.

Prices in the world’s biggest cap-and-trade market will remain under pressure in the coming weeks and may fall back to about 6 to 7 euros a metric ton as supply of allowances is expected to rise, Trevor Sikorski, an analyst at Barclays Plc, said in a research note.

The draft carbon law change, which is the first element of the EU plan to curtail oversupply on the bloc’s emissions market and help prices rebound, requires support from the national governments and the European Parliament to become binding.

In the second step, the commission wants to propose a measure to delay sales of some emission allowances at the beginning of the next trading period starting in 2013, a practice known as backloading. Those permits will be returned to the market later in the period, according to the plan.

The commission has yet to come up with a specific number of permits to be postponed at auctions. Peter Vis, head of EU Climate Commissioner Connie Hedegaard’s political cabinet, said on Sept. 18 that the commission is working on an impact assessment of its supply-curbs proposal.

The official proposal on backloading could be presented toward the end of November and possibly be voted on by representatives of national governments in the EU Climate Change Committee before of the end of this year, Sikorski said.

“Until then, the market with live with the uncertainty,” he wrote in the research note e-mailed today.

Bloomberg