Lawmakers on the European Parliament’s environment committee voted by 38-25 in favour of an amendment in support of the EU’s ‘backloading’ plans for the Emissions Trading System (ETS), throwing a lifeline to the crisis-hit carbon market.

“The ETS is not dead,” WWF’s EU policy officer, Sam Van Den Plas, jubilantly told EurActiv from the European Parliament after the vote on Tuesday morning (19 January).

“The patient is in the ambulance now but will need further treatment in hospital,” Van Den Plas said.

The vote opens the way for further moves to raise flat-lining carbon prices by backloading (or withholding) 900 million allowances from auction, so creating a market scarcity.

Next week, another environment committee vote is expected to begin the ‘trialogue’ discussions between the European parliament and EU member states on the issue. A plenary vote at the parliament is slated for April, although delays are possible.

The continuing instability on the ETS has unsettled other countries and regions that have adopted the EU’s market-based model of countering carbon emissions, such as Australia, California, South Korea and China.

The EU’s chief climate negotiator, Artur Runge-Metzger said on the sidelines of a ‘Greening China’ conference last week that because of this, “one worry is that the Chinese might think that nobody in Europe takes climate change seriously any longer.”

This, he told EurActiv, "is a much more serious potential outcome" than the Chinese abandoning their own carbon market scheme "because that then evolves into the discussions at the international level."

Sinking carbon prices

Within Europe, carbon price have sunk to around €4-€5 per tonne, due to an over-allocation of carbon allowances before recession decimated demand for them. Rejection of backloading by Parliament’s industry committee in January sparked a record fall in carbon prices to just €2.81 a tonne.

Runge-Metzger said that any failure of backloading would not necessarily affect the ETS’s link-up with other global markets because “the price is going to equalise as soon as the systems link up and common [standards] will be established for systems across the board.”

But Gerben-Jan Gerbrandy, a Liberal who is vice chair of the European parliament’s environment committee, foresaw a “huge problem” if the amendment for backloading fell at the plenary vote.

“In that case we might have to consider totally different options, and reconsider the whole ETS system,” he said, “and there are many other reasons to do so: the current system is not working.”

“If the economy starts to recover and we emit more CO2 again and prices go up, energy intensive industries will say that it is hurting our recovery,” he added.

Alternative measures

BusinessEurope, an amalgam of Europe’s confederations of industry which has led the campaign against the EU’s backloading plan, argues fiercely that a robust carbon price will damage Europe’s competitiveness. Environmentalists see the group as a powerful lobby-locus of hostility to any climate targets, but BusinessEurope argues that it merely advocates a stable and predictable business framework that can prevent carbon leakage.  

“We generally reject the [Commission proposal’s] six options because we feel that they try to solve the issue by raising the carbon price whereas we see bigger issues in the current climate and energy framework,” said Bruno Pedrotti, the BusinessEurope spokesman on climate change.

A draft position paper by the group dated 18 February, which EurActiv has seen, says that the group favours a transparent stakeholder debate, a competitive and sustainable European business sector, and a forward-looking industrial policy to boost research, innovation and technological development.

The paper also indicates that BusinessEurope currently has no rival structural measures to the EU’s. “We don’t have any quick positive alternative,” Pedrotti confirmed. “There are no quick solutions to the problems we have. We never publicly endorsed the 2050 decarbonisation targets, or said that we support them, so it is very difficult to say how we would reach them.”

Business opposition

BusinessEurope was buoyed by a statement yesterday (18 February) from Energy Commissioner Günther Oettinger, questioning the legality of any changes to the current market setup.

But 30 leading energy companies, and 81 investors with a combined worth of €7.5 trillion have broken with the group, issuing statements calling for urgent action to stimulate the clean energy economy.

Assaad Razzouk, chief executive of Sindicatum, a global sustainable resources company with over $300 million invested in low-carbon projects around the world, said that opposing price-raising adjustments to carbon auctions was akin to opposing the setting of interest rates by banks.

“It is slowing down the growth of the new green economy in Europe so it translates into job destruction,” he told EurActiv. “It is perverse because it allows polluting industries to pollute forever and locks in all their technologies. If you follow their argument it will in turn lead to those industries becoming uncompetitive and ultimately cost Europe even its old economy jobs.”

A previous meeting of BusinessEurope’s climate change committee held on the same day as an industry committee vote on backloading ended acrimoniously, with an estimated third of those present loudly protesting the group’s official stance.

Pedrotti declined to comment on that meeting, or claims heard by EurActiv that his group had written letters and developed proposals without consulting relevant working groups.

BusinessEurope’s consensus-based decision on backloading reflected “the best compromise for all members we represent, that this could be more damaging for the energy intensive industries than useful for the power sector,” he said.

Asked by EurActiv for details of who gave what in the compromise, he replied: “backloading is a ‘yes or no’ issue,” so it is difficult to find a middle way.”