June 12, 2014 / 1:33 PM / in 3 years

UPDATE 3-Germany backs EU carbon market reform by 2017

* Analysts say would push carbon prices higher, sooner

* Measure likely to face opposition from industry, eastern states (Adds quotes from German environment minister)

By Ben Garside and Barbara Lewis

BONN/LUXEMBOURG, June 12 (Reuters) - The German government wants the EU’s carbon market reform plan to be implemented by 2017, four years earlier than the European Commission has proposed, Germany’s Environment Minister Barbara Hendricks said on Thursday.

The European Commission, the EU executive, has proposed setting up a so-called market stability reserve from 2021 to hold and release permits to balance supply in the bloc’s Emissions Trading System (ETS) and better respond to economic changes.

Analysts say that starting the measure earlier would cut the market’s massive oversupply faster and push carbon prices higher much more quickly.

The government in Germany, Europe’s biggest CO2 emitter, reached its position after “several weeks of consultations” to try to spur debate on setting wider climate change goals, Hendricks said on the sidelines of a meeting of EU environment ministers in Luxembourg.

“With our position, we send a clear message for the climate change debate in the European Union. Germany wants to help ensure that the EU sets ambitious goals,” Hendricks said.

She also said Germany wanted to cancel permanently the 900 million permits that are in the process of being temporarily withheld under the EU’s separate backloading measure.

But aides clarified that in reality the cancellation was semi-permanent and Germany merely wanted to put the 900 million backloaded units directly into the market stability reserve.

“The federal government reached an agreement on the proposal yesterday after several weeks of consultations,” Hendricks added, saying this was the view of Germany’s chancellery and energy ministry as well as the environment ministry.

The ETS is meant to be the EU’s flagship policy to cut greenhouse gas emissions, but prices collapsed to a record low of less than 3 euros per tonne in April last year as a surplus of 2.2 billion permits built up. Permits still only cost around 5.50 euros.

Regulating around half of Europe’s emissions, the ETS forces over 12,000 power plants, factories and airlines to surrender a permit for every tonne of CO2 they emit.

The Commission wants to push prices back towards the 20 euros ($27.23) per tonne needed to get firms investing in low carbon technologies but has struggled to get backing from lawmakers concerned about hampering economic recovery.

The EU stability reserve proposal needs to be agreed by a majority of member states and the bloc’s parliament to become law and the move is likely to face opposition from heavy industry and coal-dependent eastern states.

Europe’s Climate Commissioner Connie Hedegaard, also at the Luxembourg meeting, said it was “a bit too early to tell” whether Germany’s idea could support get a qualified majority from member states.

“The Commission has been careful not to present anything that anybody could see as being something retrospective, but if it is appropriate for member states to do something earlier that is something we would find interesting.”

PRICE RISE SOONER

Germany’s stance means it is now much more likely the reserve plan will be agreed, according to Marcus Ferdinand, an analyst at Thomson Reuters Point Carbon.

“This is quite a strong bullish signal. Germany taking this strong position early means those against it will have to put forward some very good arguments to prevent it taking effect.”

“If agreed, the market impact would be almost immediate and prices would move up in a more stable way because the backloaded permits would not return,” Ferdinand said.

Point Carbon analysts have previously said that an early implementation of the reserve would cause prices to rise by around 40 percent on average over 2014-2020 compared with the Commission’s 2021 start date.

At the Luxembourg meeting, the 28 environment ministers did not publicly debate the reserve proposal but instead discussed a wider plan to set binding 2030 emission and energy goals.

The ministers reaffirmed a pledge to agree on the overall goals by October but were split east to west over how to share the effort in sectors not covered by the ETS, such as emissions from road transport and agriculture.

$1 = 0.7345 euros Editing by Pravin Char and David Evans

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