Europe makes decision to reform carbon market

The European Commission is planning deeper reform in the EU‘s carbon market as it attempts to address the growing supply-demand imbalance of emission allowances in the EU emissions trading system (EU ETS).

It is hoped that the move will have the effect of providing greater clarity for the markets, reducing volatility and reviving impetus in promoting green energy.

The Commission proposed on Monday to defer the auction of 900 million allowances that would have been sold between 2013 and 2015, the first three years of the next phase of the EU Emissions Trading Scheme (ETS).

In a process known as backloading, they would instead be auctioned at the end of the phase, in 2019-2020, to tackle a glut of allowances caused by the economic slowdown in Europe.

“Market operators must have clarity before year-end on this,” European Climate Commissioner Connie Hedegaard said in a statement. 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 temporary solution in theory is relatively quick and easy, in line with what the Commission sees as an urgent need to reform the market.

“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,” Hedegaard said. “This is bad for Europe’s innovation and competitiveness.”

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