Climate Action

Commission presents options to reform the European carbon market

Judge hammer and keyboard © Hemera

The European Commission is taking two important steps to address the growing imbalance between supply and demand in the EU emissions trading system (EU ETS).

As an immediate first step to address the rapid build-up in the surplus of emission allowances, the Commission has proposed to delay ('back-load') the auctioning of 900 million allowances in the third phase of the EU ETS starting next year. Today the Commission also adopted a report on the state of the European carbon market which sets out a range of possible structural measures that can be taken to tackle the surplus.

Connie Hedegaard, European Commissioner for Climate Action, said: "The Commission wants an even more robust European carbon market that provides a stronger driving force for carbon markets elsewhere. Our carbon market is delivering emissions reductions. But because of the oversupply in the market, the ETS is not driving energy efficiency and green technologies strongly enough. This is bad for Europe's innovation and competitiveness. This is why, as a first immediate step, we propose to delay the auctioning of 900 million allowances in the next three years. We must not flood a market that is already oversupplied. Market operators must have clarity before year-end on this. At the same time, the Commission presents options for possible structural measures that can provide a sustainable solution to the surplus in the longer term.''

The surplus of emission allowances has primarily built up because the economic crisis has reduced industrial emissions of greenhouse gases by more than anticipated, leading in turn to lower demand for allowances from businesses. The surplus is expected to continue in the third phase of the system, which will run from 2013 to 2020.

Following initial discussions with the Member States in the EU Climate Change Committee and a public consultation, the Commission has tabled a draft amendment which would reduce the number of allowances to be auctioned in the years 2013 to 2015 by 900 million and increase the number auctioned in 2019-2020 by the same amount.

Through this 'back-loading' approach, fewer allowances will be offered in auctions in the short term, while demand remains very low, and more later, when demand is likely to have recovered.

Today's carbon market report outlines a shortlist of six options for structural measures that could provide a sustainable solution to the surplus in the longer term. The Commission invites stakeholders' views and will shortly launch a formal consultation process.

Any legal proposal for structural measures put forward by the Commission in the light of the public debate will be subject to a public consultation and full assessment of its impacts.