Price fall triggers call to halt ETS permits

Some of Europe's largest businesses have called on politicians to underpin the price of EU emission trading scheme (ETS) allowances after the cost of permits plunged by almost 50% in 2011.

In a letter to the European Commission president, José Manuel Barroso, members of the EU Corporate Leaders Group, including Alstom, Kingfisher, Shell and Tesco, say the collapse in the price of ETS allowances risks the scheme’s ability to deliver Europe’s low-carbon future at the lowest cost and want permits withheld when phase III starts in 2013.

The letter also warns that carbon prices could fall further as carbon-intensive companies seek to improve energy efficiency in line with the EU’s proposed energy efficiency Directive.

Several energy firms, including SSE, warned last year that the Directive will have the unintended consequence of causing the collapse of, or tremendous decline in, the carbon price.

MEPs also want to see the number of allowances curtailed, with members of the European Parliament’s environment committee voting for 1.4 billion permits to be cancelled when phase III begins.

In addition, the committee says that the cap on the number of allowances should be tightened each year from 1.75% to 2.25%, significantly reducing the total number of permits available between 2013 and 2020.

Analysts say that the collapse in the price of allowances in 2011 was due to fears about the eurozone’s future and a persisting surplus of permits.

In July 2011, the campaign group Sandbag forecast a 1.9 billion oversupply of ETS carbon permits through to the end of phase III in 2020. It found that 77% of installations covered by the scheme in 2011 had a surplus of permits.

At the start of 2012, allowances were trading at €6.78. The average price in the second half of 2008 was €22, having peaked at around €30 in April 2006.