Isra-Mart srl: Brussels In Disarray Over Energy Directive

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Commissioner Connie Hedegaard, has broken with protocol to warn that the European Commission’s draft Energy Efficiency Directive could “undermine” the bloc’s carbon market.

It is extremely rare for Commission officials to comment on draft EU laws.

But staff in the climate department are privately fuming that new efficiency regulations, due on 22 June, would apply not just to buildings and vehicles, but industrial sectors already covered by the EU’s emissions trading scheme (ETS), which puts a price on carbon by placing a limit on CO2 emissions.

Such a duplication could depress carbon prices, as efficiency measures cancel out the need for pollution permits, leading to a market glut.

“More than half of those measures [in the draft] target the installations covered by the emissions trading scheme (ETS),” Vis told a conference organised by the German Marshall Fund of the US in Brussels.

“We have got two policy approaches knocking up against each other and that isn’t helpful.”

Carbon prices at risk of free-fall

Vis was speaking a day after five European energy companies warned that the draft directive risked a “tremendous decline” in carbon market prices.

“We’re big supporters of energy efficiency,” he said, “but we have to be careful not to undermine a system that is in place now – the ETS – which is a global leader”.

Two internal EU studies contained in an impact assessment predict carbon prices falling from €25 a tonne to either €14 a tonne, or close to zero, as a result of the efficiency drive.

That would dent budgeted revenues for low-carbon investment across the EU in the third phase of the ETS, which runs from 2013-2020.

Henry Derwent, president of the International Emissions Trading Association (IETA), told EurActiv: “For a European climate policy which has been focused on achieving [carbon] prices high enough to drive investment to deliberately undermine and reduce that price seems quite extraordinary.”

Hedegaard has previously suggested that a corresponding number of “set aside” carbon permits could be removed from auction in the third phase of the ETS between 2013-20 to compensate for any carbon price shortfall. Vis described this as a “flanking measure”.

Policy dissonance

Meanwhile, market analysts have been shocked by the policy dissonance revealed in the latest spat.

Derwent bemoaned what he called “an extraordinary lack of understanding or faith” in the ETS by the architects of the efficiency directive.

Some analysts claim that EU climate policy has been increasingly influenced by energy-intensive firms, which have favoured low carbon prices, since the economic crisis began.

Vis stressed that the Commission’s environment department supported a free-market approach to reducing carbon emissions.

In a veiled reference to the EU’s energy commissioner, Günther Oettinger, he said: “Of course there are sometimes policymakers who say ‘let’s legislate and make it command and control and then we’ll be sure that they’re going to do it’.”

“But you can have an interaction which is less than happy between a regulatory approach and a market-based approach,” he added.

EurActiv understands that the final text of the efficiency directive is still being intensely negotiated behind closed doors by the commissioners’ staff in Brussels.

An official close to Hedegaard denied speculation that the problem occurred because Commissioner Oettinger had tried to shackle the ETS.

“I don’t think there has been bad faith here,” he told EurActiv. “What we need to do is keep co-ordinating [between] ourselves.”

At a meeting of energy ministers in Luxembourg on 10 June, EU member states rejected one other key element of the draft directive: a binding 3% target for public building renovations that would have made schools and libraries more energy efficient.

Portugal blamed the economic crisis for the proposal’s failure.