EU ETS emissions down in 2011, permit glut grows Tue May 15, 2012 11:50am EDT Verified emissions at 1.889 bln tonnes, down more than 2 pct Carbon permit supply glut grows to 900 mln EU to propose structural reform options by summer recess By Barbara Lewis and Nina Chestney BRUSSELS/LONDON (Reuters) - Carbon emissions in the European Union's Emissions Trading System (ETS) fell by more than 2 percent in 2011 but an oversupply of permits key to driving greener energy use worsened, European Commission data showed on Tuesday. The glut in pollution permits has grown to 900 million, data showed, which could put further pressure on low carbon prices. ETS emissions decreased by more than 2 percent in 2011, despite an expanding (economic) recovery. This good result shows that the ETS is delivering cost-effective emissions reductions," the Commission said in a statement. It also emphasizes why the ETS remains the engine to drive low carbon growth in Europe. However, some carbon analysts said the decline in emissions was due to lower power generation due to weak industrial output towards the latter end of the year and a slowing economy. The EU's emissions trading scheme (EU ETS) limits the carbon dioxide emissions of the 27-nation bloc's factories and power plants and covers nearly half of EU emissions. Preliminary data in April showed a fall of 2.4 percent in carbon emissions in 2011, suggesting the bloc is on track to achieve its 2020 climate target to cut emissions 20 percent below 1990 levels. Carbon prices were unmoved by the data but by 1414 GMT had edged down 1.35 percent at 6.59 euros a ton. "The EU data was not much different to what came out in April so there is minimal reaction on the market," an emissions trader said. Less than 1 percent of installations taking part in the EU carbon scheme did not surrender allowances covering all of their 2011 emissions by a April 30 deadline, the Commission said. Only 2 percent of installations failed to submit verified emissions for 2011. Tuesday's data also points to a growing oversupply of carbon units, thanks to a record use of international carbon credits in the EU carbon scheme at a time of stagnant EU economic growth and flagging industrial output. Last year's record use of international credits has increased the buffer of unused allowances by some 450 million. This means more than 900 million more allowances have been put into circulation than were surrendered for compliance use over the period 2008-2011," the Commission said. Carbon permits are handed out to installations in each reporting year. Each company must surrender enough allowances to cover its emissions by the end of April in the following year, otherwise fines can be imposed. Polluting plants in the ETS can also use a certain number of U.N.-backed carbon credits for compliance, most of which are certified emission reductions (CERS) - credits issued to qualifying emissions-reduction projects in developing countries. Cumulatively, the EU ETS has been responsible for the use of 456 million CERs, of which over half came from projects located in China and 17 percent from India. European carbon prices have shed around 60 percent of their value over the past year due to market worries about the growing supply glut and weak demand. The benchmark carbon price hit a low of 5.99 euros a ton in April, well below the level needed to spur green investment. To prop up low prices, the Commission said last month it would review its auctioning rules for the ETS, a proposal which would have to be approved by member states. This could involve changing the timing of auctions, or delaying them, to limit supply in the short term, a process referred to as "backloading." Before the Commission breaks for summer in August, it will outline more ways to boost prices and reform the ETS, with a legal decision expected by the end of the year, EU Climate Commissioner Connie Hedegaard told reporters on Tuesday in Brussels. "It's not that one should expect backloading in itself will do the whole trick and then suddenly the price will be very much bigger," Hedegaard said. Options to a more structural addressing of the problem of the too-low price in the system...that's a more complicated process. Such structural reform options would be part of an annual ETS review. They could include discussion on a lower emissions cut target and/or setting aside carbon permits from the third trading phase of the scheme which runs from 2013 to 2020. EU officials, member states and lawmakers have been debating if and how to intervene in the market for some time, including a one-off move to withhold a certain number of carbon permits for the 2013-2020 period. Many in the market are expecting a decision on that this year or next. $1 = 0.7789 euros Reporting by Barbara Lewis, Nina Chestney and Jeff Coelho in London; editing by Rex Merrifield and Jason Neely