Government drags feet over proposal to revive carbon trading market

Denmark has yet to support a proposal to withdraw CO2 quotas in order to boost their price

Denmark has yet to throw its backing behind a proposal to revive the EU’s flagging carbon emissions trading scheme (ETS).

Launched in 2005, the ETS covers over 11,000 factories and power stations in 31 European countries and is designed to encourage businesses to limit their carbon emissions by forcing them to buy the right to emit more than a set amount of CO2.

But following the onset of the financial crisis in 2008, the cost of a CO2 quota – equivalent to emitting a tonne of CO2 – plummeted from around 140 kroner to around 30 kroner, undermining the market and reducing the incentive to invest in renewable energy technology.

The collapsed market has been blamed on a lack of demand and a surplus of free emissions allowances, which led to the European environment commissioner, Connie Hedegaard, proposing to withdraw 900 million quotas from the market in a so-called ‘backloading’ measure.

The European Parliament’s environment commission voted in favour of the measure on Tuesday and it has to now either be approved by the European Parliament (EP) alone, or through a joint negotiation between the EP, the environment commission and member states.

Denmark has yet to state whether they will support enacting the reform, however, which is considered the last chance to revive the ETS, much to the disappointment of energy lobby group Dansk Energi.

“Denmark, who tends to be one of the leading figures in the green sector has been alarmingly quiet,” Dansk Energi spokesperson Ulrich Bang told Information newspaper. “I fear that the doubters might point out that even when pro-green countries are hesitant, then maybe it’s not a good idea at all.”

The climate and energy minister, Martin Lidegaard (Radikale), confirmed that Denmark was hesitant and that the government’s current focus on domestic reforms was the focus of their attention.

“We are still in the investigative stage,” Lidegaard told Information newspaper. “We need to examine the financial effects of the proposal. Dansk Industri thinks it will cost about 300 million kroner and that there will be a marked increase in the cost of quotas. Others don’t think there will be any effect.”

Despite Lidegaard’s hesitation, 30 major companies from the utility, petro-chemical and manufacturing sectors – including DONG Energy, the Danish Energy Association and Vestas – made a joint call for the European Parliament and governments to restore confidence in the ETS by withdrawing the 900 million quotas.

“This intervention will send a strong signal to companies, investors and low-carbon technology providers that the EU ETS is the centrepiece of climate and energy policy,” the companies declared in a press release. “Some governments (Germany, France, Spain, Denmark, Hungary, Romania and Czech Republic) have yet to agree on their positions to the proposal, which is holding up progress in the European Parliament.”

The European-wide business lobby group Business Europe, on the other hand, is opposed to removing the quotas. In a press release, Business Europe stated that the low quota price is the result of the economic crisis and will rise naturally as industrial output increases.

Other opponents argue that reducing the number of quotas will increase costs for businesses that emit carbon, which will in turn slow down the economic recovery.

The EU’s ageing energy infrastructure needs upgrading over the next decade and given that the EU has also committed to significantly reducing carbon emissions, renewable energy is expected to make up a significant portion of this investment.

But according Assad Razzouk, the chief executive of green energy firm Sindicatum, the EU stands no chance of increasing investment in renewable energy unless CO2 quota prices increase.

“It is slowing down the growth of the new green economy in Europe, so it translates into job destruction,”  Razzouk told EurActiv. “It is perverse because it allows polluting industries to pollute forever and locks in all their technologies. If you follow their argument, it will in turn lead to those industries becoming uncompetitive and ultimately cost Europe even its old economy jobs.”

Given this position and the fact that Denmark has committed to massively investing in renewable energy, there is pressure on the Danish government to take a clear stand on the quotas.

The proposal voted on by the EP’s environment committee currently only delays the 900 million quotas until 2019, though Hedegaard has voiced hope that the surplus quotas will eventually be discarded entirely, a position that Denmark has previously supported.

MP Per Clausen (Enhedslisten) told Information that he hoped the government was not about to backtrack on its pledge to increase investment in renewable energy in exchange for creating better conditions for Danish industry.

“The proposal to temporarily withdraw CO2 quotas from the market is not a radical proposal," Clausen said. "But while it may not be sufficient, it’s currently the only option to increase the price of CO2 and thus support the transition to renewable energy.”