Britain Urges Deeper EU Carbon Market Reforms

Britain said it wants deeper reforms to the EU Emissions Trading System than those proposed by the European Commission and Germany, favouring cancelling hundreds of millions of carbon permits over launching a tool to regulate market supply.

In a report detailing its vision for the fourth phase of the EU ETS, which will run from 2021 to 2030, Britain said major changes to the system are needed to help businesses cut their greenhouse gas emissions, to protect them from foreign competitors, and to foster investment in low-carbon technology.

"The UK is asking for bold and comprehensive reforms to restore the ability of the EU ETS to drive cost-effective emission reduction and low-carbon investment," Ed Davey, secretary of state for energy and climate change, said in a statement on Wednesday.

The Commission, the European Union's executive, in January proposed setting up a mechanism - dubbed the market stability reserve (MSR) - from 2021 to regulate the supply of allowances in the ETS, the bloc's main weapon to combat climate change.

As the only legislative proposal so far among wider recommendations to extend energy and climate goals to 2030, the MSR aims to expedite the shrinking of a surplus of more than 2 billion permits, which has knocked EU carbon prices to around 6 euros per tonne from more than 30 euros in 2008.

But Britain has not formally backed the MSR.

"The MSR can potentially help but it is not the comprehensive change we urgently need to tackle the surplus," said a spokeswoman for Britain's Department of Energy and Climate Change, adding that the government is studying the proposal.

Instead, Britain said it wants to cancel permanently a "significant number" of the surplus permits, without specifying a figure or range.

The spokeswoman said the government is also weighing up a separate proposal from Germany to start the MSR in 2017, some four years earlier than proposed by the European Commission.

Germany wants the 900 million allowances delayed from sale under the EU's so-called backloading initiative to be put directly into the reserve, rather than gradually reintroducing them to the market as proposed by the Commission.

Britain on Wednesday also called for an overhaul of EU rules expiring in 2020 that allow heavy industrial companies to get most of their carbon permits for free.

In line with remarks in May by the Commission's top climate official, Britain suggested the free permit provision should continue but that the list of eligible industries be trimmed and target only the most vulnerable sectors.

(Reporting by Michael Szabo and Ben Garside; Editing by Dale Hudson)