Merkel closer to support for EU ETS reform

Merkel closer to support for EU ETS reform


German Chancellor Angela Merkel has said economic growth assumptions behind the European Union’s Emissions Trading Scheme (ETS) no longer applied and action should be taken about back-loading supply in the market after September’s election.

The news of Ms Merkel’s first cautious backing for reform seeking to boost prices in the EU’s flagship ETS sent carbon prices sharply higher.

Reuters Newsagency reports traders interpreted it as likely support for the passing of the plan.

December delivery carbon emissions allowances were at €3.43 a tonne, up 11 per cent.

Australia’s carbon price will revert to a market based ETS in 2015 and will be linked to the EU market.

“All of the assumptions about trading certificates no longer apply,” Ms Merkel said at a church event in the German city of Hamburg.

The Chancellor added that growth estimates had been over-optimistic and a Europe-wide downturn led to shrinking demand for permits and falling prices.

Reuters reports Ms Merkel did not specify what should be done about back-loading but said it should be twinned with a reform of Germany’s renewable energy law, which generously subsidises green energy.

This would not be possible before September’s federal election but should be done very quickly afterwards, she added.

Her environment and economy ministers’ failure to agree with each other on a common stance for back-loading at European level contributed to its recent rejection in the European Parliament.

The highly political issue is being pursued further by the European Commission, which is expected to present a legislative proposal by the end of the year.

However, German inaction may mean attempts to rescue the market drag on.

EC estimates put the necessary ETS carbon price at €20 to be able to drive investment in clean technologies.

Reuters reports because of failings in the ETS, there are now mismatches in the market whereby heavily CO2-polluting coal-to-power stations work profitably while gas burning technology, which is cleaner, has become too expensive.

“This cannot be right, we have to restore some form of order,” Ms Merkel said.

She added that another problem of low prices was that an ETS-financed German instrument to support climate protection measures was underfunded.

Germany’s shift away from nuclear and fossil fuels towards emission-free technology was being watched worldwide, she said, adding: “Its success has a significance far beyond Germany.”