On Monday the German coalition parties agreed to auction 40 million carbon allowances annually during the 2008-2012 period of the EU emissions trading scheme. However, it now appears that the government will sell rather than auction the EUAs in 2008.

“3C appreciates the parties’ decision to temporarily arrange for a sale of certificates at market value, which could be implemented promptly,” said Markus Huewener, managing director at 3C Holding in Germany.

A sale would enable installation operators to access allowances at an early stage in 2008, he continued. “An auction as the only instrument would deprive the market of a significant volume due to the lead time of several months.”

Thomas Langrock, senior manager at 3C was also positive. “We welcome the German government’s decision to sell the allowances next year and maybe the year after,” he told Montel Powernews. “In fact, we would suggest that the 40m tonnes continues to be sold.”

Transparency

Langrock argued that in order to make the process as transparent as possible, the EUAs could be put in the hands of a third party who could make a certain amount available on each trading day. “In that way everyone is aware of the amount of [EUAs] that will come to market.”

Should the sale of emission allowances be performed successfully, an auction might not be necessary, according to the company. “The sale of emission allowances is as economically efficient as an auction – with lower transaction costs for the government and installation operators,” argues Huewener.

The company anticipates a shortage of emission certificates, especially in 2008, mainly due to the slow development of the supply of certificates from climate protection projects in developing nations under the Clean Development Mechanism (CDM) installed by the Kyoto protocol.

“Considering that analysts expect the market in 2008 to be short by between 100 and 400 million emission certificates, one can gauge the impact that the sale of 40 million emission certificates per year would have,” said Huewener. Thus 3C eagerly awaits the announced regulation for the implementation of the sale of emission allowances.

Germany’s emissions trading law will be put before the German parliament (Bundestag) this Friday, and then it must be approved by Germany’s regional governments. The law could be in place by 1 August.

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(Oslo, June 20, 2007)

Snjolfur Richard Sverrisson

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