EU Haggles over Carbon Market Reform

A compromise date of the very end of 2018 for reform of the EU Emissions Trading System (ETS) has run into opposition from some legislators, EU sources said, ahead of a vote next week that will be closely watched by the world's biggest carbon market.

Members of the European Parliament, trying to overcome their differences over a plan to reduce a glut of allowances that has depressed the prices of allowances (EUAs), vote on the proposal in a committee next Tuesday.

Dec. 31, 2018, was mooted last week for beginning to put some allowances into a repository known as the Market Stability Reserve (MSR).

It is earlier than the European Commission's proposal of 2021, but later than the 2017 start member states such as Britain and Germany and some politicians prefer.

An email seen by Reuters said the social democrats alliance could not accept the Dec. 31 date, though it might be willing to support Jan. 1, 2018. Parliamentary sources said Greens and the ALDE liberal alliance also rejected the later date, put forward by the main centre-right parliamentary group.

The difference between the two dates is likely to have little market impact, analysts say. "The political price for a one-year difference in start date is much higher than the actual average price impact on EUAs," Thomson Reuters Point Carbon analyst Marcus Ferdinand said.

He said a year delay equated to roughly one euro per tonne.

On Wednesday, EUAs dipped below 7.50 euros.

To try to boost prices and spur a switch to greener energy, the European Commission proposed removing hundreds of millions of ETS allowances from 2021.

While Britain and Germany led calls for reform from 2017, other nations, led by Poland, whose economy is reliant on carbon-intensive coal, say there is no case to act before 2021.

Next Tuesday's vote is not definitive. It needs to be followed by a plenary parliamentary vote and member state endorsement.

Agreeing to carbon market reform is fraught as energy intensive industry says it adds to costs and could push industry out of Europe. But other sections of industry and utilities, including E.ON and Iberdrola (IBE.MC), say early reform is vital to drive investment in renewables.

By Barbara Lewis