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Report: EU must retire carbon credits or see market credibility lost

March 7, 2013

Report: EU must retire carbon credits or see market credibility lost

The European Union’s plan to reform its emissions trading scheme (ETS) will fail to deliver the desired increase in carbon prices unless they are accompanied by more drastic action.

That is the stark warning contained in a new report released today by the London School of Economics (LSE) Grantham Research Institute on Climate Change and the Environment, which warns proposals to withhold the sale of carbon allowances will only defer the problems created by an over-supply of tradable EU allowances (EUAs).

Brussels is currently considering a plan to “backload” the proposed sale of up to 900 million EUAs in an attempt to address the record low carbon process that have resulted from a chronic oversupply of credits. The European Parliament’s Environment Committee voted in favor of the plan last month, paving the way for a full parliamentary vote. However, concerns remain that a number of countries could yet seek to block the carbon rescue plan.

The LSE’s report warns that even if the plan is approved and the sale of 900 million EUAs is delayed until later in the decade, it will not guarantee a “sustained increase in price and the orderly functioning of the ETS.” It adds that “the only market intervention in the short term that would be credible” is the immediate removal of the allowances from the market altogether.

The report’s recommendation of a permanent retirement of allowances echoes from a host of green NGOs and carbon market analysts who have repeatedly urged politicians to either restrict the supply of carbon credits in the market or boost demand for allowances by strengthening the EU’s mandatory emission reduction targets.

Read more at Business Green.

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