German CO2 Cuts Dampen Carbon Permit Demand

Germany's new, lower targets for CO2 emissions will further curb demand for carbon permits and undermine Europe's already dysfunctional emission trading system, the EU's new energy commissioner told a German newspaper.

"The agreed additional emission reductions in the power plant sector are also causing a further decline in demand for certificates," Miguel Canete, EU Commissioner for Climate Action and Energy, told the Frankfurter Allgemeine Zeitung.

"This has an impact on the Emissions Trading System (ETS) which we will closely examine as part of the ETS review," he added.

Germany's cabinet agreed plans on Wednesday to reduce CO2 emissions by up to 78 million tonnes by 2020 to help Europe's biggest economy meet ambitious targets to fight climate change.

The ETS puts a price on carbon by obliging more than 11,000 power plants and manufacturers, as well as airlines, to acquire permits to cover the greenhouse gases they emit. But Europe's recession has resulted in a massive oversupply of permits in the system, causing the price of allowances to tumble below 7 euros from over 30 euros in 2008.

The Commission has proposed plans to remove the glut of carbon permits that is depressing the market, but member states have yet to agree how quickly to implement them.

A carbon price of around 30 euros per tonne is needed to drive investment in onshore wind generation, the International Energy Agency has said.

Reporting by Christoph Steitz