London, 23 October (Argus) — The EU emissions trading scheme (ETS) allowance market could experience a price jump of €20/t CO2 equivalent (CO2e) if a significant surplus is removed from the system, according to Eoin Parker, head of EU ETS in the UK's Department of Energy and Climate Change (Decc).

“If we remove the surplus of 1.7bn that will have accumulated at the end of phase 2, we could see an uplift of €20/t CO2e,” Parker said at the Carbon Show in London today. “We could really see a substantial change in the system if we remove this surplus.”

The European Commission has outlined three options in its proposal to back-load allowances from the early years of phase 3 of the ETS — 400mn, 900mn and 1.2bn — but none of those options are high enough, Parker said. “We want to begin phase 3 with as little hangover as possible, so Decc has been pushing for 1.7bn.”

The allowances should be removed permanently, he said. “Back-loading does not take you far enough — it just moves allowances from one part to another. It does not fundamentally address the surplus.”

Because the back-loading proposal involves both a co-decision amendment to the ETS directive and amendments to the ETS auctioning regulation through comitology, it could take a long time until a final decision is reached and implemented, Parker said. “There is a question over how far the EU can go in agreeing the comitology amendment before there has been agreement in council and the parliament on the directive. If you have to wait until full co-decision on the directive before a vote in the Climate Change Committee, then that is quite a long timetable.”

“Now it seems closer to late 2013 until any back-loading is agreed, which potentially leaves us in a difficult place,” Parker said.

Specifically, the current timetable for the vote in the European Parliament on the directive change is quite slow, which has a delay on the whole process, he said. “The chair of the working group chose to take a slow timetable, in order to allow a lot of time for discussion and hear experts' opinions… But it is not clear that all member states think you can proceed with the comitology amendment until agreeing the ETS directive change — it is legally arguable on either side.” The European Parliament will first vote on the amendment to the directive on 19 February 2013.

All member states are interested in taking action to strengthen the ETS, even those that “are often seen to be holding back”, Parker said. Cancellation of allowances and a change to the level of the cap are two of many long-term options to strengthen the system, he said. “The debate is still evolving, but the vast majority of member states see the need for a focus on the long term. They do not want to see back-loading on its own — they want to see whether it takes us to structural reform.”

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