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May 16, 2013 6:08 pm
The surplus of permits in the EU’s carbon market more than doubled last year to 2bn, according to fresh data that Brussels hope will rally support for its controversial plan to boost carbon prices.
The data – released by the European Commission, the EU’s executive arm – reveal that free permits given over the past five years to makers of steel, glass, cement and other heavy industries exceeded their carbon emissions during that period by nearly 300m tonnes.
Under the rules of the EU’s flagship scheme to address climate change, each permit allows a company to emit a tonne of carbon without penalty. Companies can bank excess permits to meet future obligations or sell them for cash on the open market.
The latest figures come amid a debate between Brussels and European industry about the merits of intervening in the carbon market – the world’s largest – to prop up prices that have fallen from more than €30 per tonne five years ago to less than €4 today.
That price collapse has removed an incentive for companies to invest in clean technologies. It stems from a glut of free permits as well as an unforeseen economic crisis that has damped industrial activity across Europe.
The commission will use the data to challenge a claim from European manufacturers that the carbon market has become a costly burden that threatens their competitiveness.
That argument proved surprisingly successful last month when the European parliament rejected a proposal to postpone – or “backload” – the auction of some allowances in order to support prices. In explaining their votes, several MEPs cited concerns about imposing higher costs on companies in the midst of a recession.
The parliament will take up the backloading proposal again next month. In the meantime, the commission is also seeking to rally support from national governments.
Connie Hedegaard, the climate commissioner, said: “These facts underline the need for the European parliament and the European Council to act swiftly on backloading.”
Adrian van den Hoven, the director of industrial policy at BusinessEurope, the EU’s largest employers’ group – and an opponent of backloading – drew a different conclusion.
Mr Van den Hoven argued that many of the excess allowances had emerged because manufacturers had been forced to close plants in Europe. He also argued that economic recovery and an accompanying increase in industrial activity would help to correct the oversupply of permits.
“We believe that if we could come out of the recession ... that you would also have an increase in the carbon market,” Mr Van den Hoven said.
The EU agreed to give free permits to many companies in order to smooth their adjustment to the market and prevent the risk of “carbon leakage” – in which manufacturers move highly polluting industries outside Europe to avoid costly regulations.
The commission data, which were compiled by Bloomberg New Energy Finance, found that heavy industries were given 9.9bn permits for free during the five-year trading period that ran from 2008 to 2012. Yet their cumulative carbon emissions totalled only 9.7bn tonnes during that period.
The steel industry was among the biggest beneficiaries, according to the report, receiving 1.15bn free permits while emitting 729m tonnes. The ceramics industry was awarded 94m free permits, more than double its 49m tonnes of emissions.
Airline carbon fines
Chinese and Indian airlines are facing fines after refusing to pay for their carbon pollution on flights within the EU.
The threat marks the latest tension over the EU’s controversial plan to force foreign carriers to participate in its carbon market.
Several governments – including the US, Russia, Brazil, India and China – have complained that the policy amounts to extraterritorial taxation.
Amid an outcry and threats of a trade war, Brussels agreed in November to freeze the plan for one year for foreign carriers flying to and from Europe. Yet the policy remained intact for flights within the EU.
US and Russian carriers have complied by reporting their emissions for such flights and handing over a corresponding number of carbon permits by an April 30 deadline.
But eight Chinese and two Indian carriers have not, according to an EU official. They are Air China, Air China Cargo, China Cargo, China Eastern, China Southern, Hainan Airlines, Yantze River Express Airlines, Jade Cargo, Air India and JET Airways.
Under EU rules, offending carriers can be forced to pay a €100-per-tonne fine for their emissions or – in extreme cases – be barred from operating within the EU.
Based on EU calculations, the Chinese fines would be about €2.4m while those against the Indian carriers would be far less – about €30,000.
The carriers will be notified of their violations shortly by respective EU member states, which share responsibility for enforcing the system, and will be given two months to respond, the official said.
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