Italy wants the EU to use carbon allowances from a pot of those unallocated at the end of this decade to help compensate industry for ETS-related power price hikes, ICIS reported on Thursday, citing an anonymous diplomatic source.
ICIS said the call came during recent negotiations on the MSR. The issue is set to be considered by the European Commission as part of its review of the EU ETS Directive due by July.
EU lawmakers have agreed that unallocated allowances – which some analysts estimate will amount to as much as 700 million units by 2020 – should enter the MSR.
But the MSR deal left some uncertainty by inviting the Commission to consider in its review whether up to 50 million of the allowances should be used to help fund innovative low-carbon projects. The EC also said it will consider whether unallocated allowances should be used for addressing carbon leakage.
Direct carbon leakage is currently addressed through the free allocation of EUAs to industries, but Italy is not one of the six member states currently opting to give financial compensation to their heavy industries for indirect carbon leakage, for example higher power prices due to power companies passing on the cost of having to pay for their EUAs.
In theory, allowances could either be allocated freely to industry or sold at auctions. If 50 million were sold, this could raise around €840 million by 2020, based on analyst price projections.
If the Commission backs the measure and proposes auctioning the units, the move could limit EUA price gains for the rest of this year, according to Mark Lewis, an analyst at Kepler Chevreux.
The review of the ETS Directive needs to be agreed by EU lawmakers in a process that could take at least two years.