EU ministers approve the law to cut supply of carbon permits

The plan to raise EU carbon prices was published in the official journal of the European Union this week, enacting into law the so-called backloading measure. This initiative will allow the withdrawal of a maximum of 400 million permits from auction schedules this year.

So, after months of opposition from industrial lobbies and wrangling between lawmakers, the European Union has managed to push through the plan to cut the supply of permits to be sold under the EU Emissions Trading System (ETS) by around 40 percent this year. The aim of the plan is to incentivize more investment in low carbon technologies.

Carbon traders are keenly watching the progress of the implementation of backloading, as its rules mean that a March start would allow this year’s total permit withdrawal to be 400 million, whereas an April start would allow only 300 million units to be withdrawn.

Analysts say that it still could take two or three weeks for energy exchanges to change their auction schedules. Also, they say benchmark prices, currently at around 7.20 euros per tonne of emissions, could climb to as high as 15 euros by the end of 2015 due to backloading, which will withdraw 900 million permits over the next three years and re-introduce them at the end of the decade.

Now that backloading has become into law, it will make an announcement in the following days which auction dates would be the first ones to be affected.

Exchanges must give at least two weeks’ notice of any change to their auction calendar.

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