The European Commission has smartly dodged a Polish roadblock on carbon market reforms, but only with a short-term proposal for boosting prices which could still leave these languishing until 2015 or beyond.
The European commission is in favour of higher carbon prices, to drive emissions cuts, but at least one EU member state, Poland, disagrees, and from there stems a skirmish which threatens the scheme.
EU allowances (EUAs) are trading at or near record lows, after recession dented pollution and demand for permits.
On Thursday the commission’s head of climate action Connie Hedegaard proposed a short-term solution. The question is whether this will work – in raising prices – and whether a longer term back-up is ready.
At present, there is no obvious reason why the short-term remedy of temporarily withholding permits should boost prices, as it simply holds these in reserve to swamp the market later.
Almost all analysts agree that the present carbon credit glut is sufficient to leave the market over-supplied throughout its third trading phase from 2013-2020.
That throws the debate forward to what longer term, back-up solution the European Commission has.
It turns out this is the same as before Thursday – to amend the underlying law, the Emissions Trading Scheme (ETS) Directive, and permanently cancel surplus EUAs.
Given that amending a directive takes more than a year, and the commission hasn’t kicked off that process yet, that leaves carbon prices potentially in limbo through 2015.