Business leaders call on EU to protect the carbon price

Some of Europe's largest businesses have demanded that the EU take urgent action to shore up its emissions trading scheme (EU ETS) as carbon prices dropped to another record low.

In a letter to European Commission president Jose Manuel Barroso, companies including Shell, Alstom, SSE and Dong Energy said the EU ETS must be strengthened to boost carbon prices and spur investment in green technologies.

They suggested withholding a number of permits from 2013's Phase III auction to reduce oversupply in the market, a move that would have to be approved by member states.

"A well-functioning ETS with a robust price signal will restore confidence in clean technology investment, reaffirm the 'flagship' status of the scheme, and reinforce the international credibility of the EU ETS," the letter stated.

"Since the EU ETS is a leading symbol of the effort to tackle global climate change and reach Europe's commitments, it is critical that the European institutions take decisive action now."

The letter, orchestrated by the Prince of Wales' EU Corporate Leaders Group on Climate Change, comes as carbon prices plunged to €6.30 a tonne yesterday, well below the previous low of €6.77 on December 6.

Analysts blame the Eurozone debt crisis for the slide, while the deal struck at the Durban climate conference over the weekend has not increased the demand for permits.

The letter cautioned that the price drops seen throughout 2011 could be accelerated further if carbon-intensive firms improve their energy efficiency as a result of the EU's new energy efficiency directive. This echoes a warning issued by five firms, including SSE and Dong, earlier this year.

It added that, while the companies "strongly support" the energy efficiency proposals unveiled in June, these could result in a 13.9 per cent reduction in 2020 year-end carbon prices.

"It is therefore imperative that these potential impacts are taken into account and measures are put in place to ensure the viability of the ETS before it is too late," the letter said. "We ... call upon the European institutions and member state governments to ensure that the EED or future policy measures are aligned with the ETS."

The companies also proposed that the EU should introduce a mechanism that would protect the cap-and-trade system from future macroeconomic shocks in the fourth phase of the ETS, timings for which have not yet been determined.

"This could be delivered through a number of mechanisms including consideration of an auction reserve price," the companies said.