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European Union nations will discuss today a proposal by the blocs presidency to strengthen a planned overhaul of its emissions-trading system by preventing the return to the market of permits delayed at auctions in 2014-2016.

Latvia, which took over the 28-nation EUs rotating presidency earlier this month, proposed transfering 900 million carbon allowances directly to a market-stability reserve, according to two people with knowledge of the matter. That would bar governments from auctioning the permits -- equivalent to almost a half of an average annual emissions cap in the EU -- to companies in 2019-2020, helping the EUs effort to alleviate a record oversupply.

Climate officials from EU member states are scheduled to debate the draft carbon fix at a meeting in Brussels today and will continue talks in the coming weeks. The measure would impose automatic supply controls in the EU emissions-trading system, where a glut of permits pushed prices down about 80 percent over the past six years.

EU allowances for delivery in December closed unchanged at 6.80 euros a metric ton on the ICE Futures Europe exchange in London yesterday.

The presidencys proposal would enable establishing the market-stability reserve earlier than the 2021 proposed by the European Commission last year, while making it operational at a later stage, according to the people, who asked not to be identified, citing policy. Latvia did not suggest any concrete date for the creation of the reserve and put the proposed 2021 date for making it operational in square brackets in a document sent to other member states, indicating it was open for a discussion, the people said.

The draft by the commission needs qualified-majority support from national governments and majority support by the European Parliament to be approved or amended. EU member states have been split on the carbon-market fix, with Germany and the U.K. pushing for an early introduction in 2017 and Poland opposing an accelerated overhaul or the transfer of delayed permits to the reserve.

Ivo Belet, the lawmaker overseeing the measure in the EU Parliament, also recommended placing the 900 million permits directly in the reserve and signalled he was open to an early introduction of automatic supply controls. The legislatures industry committee is scheduled to vote on a non-binding opinion on the reserve on Jan. 22 and the environment committee, which leads the parliamentary work on the proposal, is due to decide on its position on Feb. 24.

Under the commissions proposal, the supply of permits will be reduced if there is an accumulated surplus of at least 833 million metric tons. If the surplus fell below 400 million tons, the EU would begin returning allowances to the market from the reserve. Latvia proposed shortening to one year from two years the time lag between calculating the number of permits in circulation and transferring allowances into or releasing them from the reserve.

To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net

To contact the editors responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net Jones Hayden, Andrew Clapham

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EU Nations to Discuss Latvia Bid to Strengthen Carbon Fix