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German Government Divided Over Future Of Emissions Trading Flop

Joel Stonington, Spiegel Online

The European cap-and-trade system has slid into near meaninglessness as Germany bickers on the sidelines. Hopes that the election in Lower Saxony might resolve the high-level bickering were misguided. Now Europe’s carbon market has hit a new low.

For those involved in European Union climate policy, the German regional election in Lower Saxony on Sunday was a nail-biter. The hope for many was that Germany’s pro-business Free Democratic Party (FDP) would suffer defeat and leader Philipp Rösler, who has been under pressure within his party for weeks now, would be forced to step down as economics minister. But that didn’t happen. Instead, Rösler ended up in a stronger position than before, and the flagship project of Europe’s climate policy settled deeper into a lifeless coma.

German Economics Minister Philipp Rösler and Environment Minister Peter Almaier are at loggerheads over a proposal to rescue Europe's cap-and-trade system.

German Economics Minister Philipp Rösler and Environment Minister Peter Almaier are at loggerheads over a proposal to rescue Europe’s cap-and-trade system

Rösler is against a short-term plan to boost prices on the European Emissions Trading System (ETS), while Environment Minister Peter Altmaier of Chancellor Angela Merkel’s conservative Christian Democratic Union (CDU) party favors it. Rösler opposes any intervention in the carbon market and stands by the market process that has resulted in a collapse in the price of carbon allowances. The plan, called backloading, would take 900 million carbon allowances out of the system temporarily to help boost the carbon prices and partially relieve a massive glut. But the German government is split on the plan, with Merkel remaining on the sidelines. Whatever happens, market players say it is already clear that Germany’s stance will be pivotal.”I have been surprised about how unwilling Angela Merkel has been to step into this debate and resolve it on behalf of the government,” said Mark Lewis, a climate market analyst at Deutsche Bank. “It’s extremely frustrating. It’s taking longer and longer. And as a result, the market is going lower and lower.”

The German Chancellery did not respond to a request for comment.

The ETS is now in its crucial third phase — one in which it was to reduce the number of carbon credits available on the market, forcing prices up and pollution down. However, too many carbon credits were issued in the early years and companies produced less in the downturn, resulting in a surplus of credits. Prices have gotten so low that Germany recently cancelled an auction of carbon credits for the first time, after no bids came in at the minimum price.

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