The European Parliament backed a plan on Wednesday (3 July) to support carbon prices by withdrawing part of the emission permits traded on the EU's carbon market. Prices jumped up after the vote but remained low as national parliaments still have to ratify the proposal.

The European Commission had to sweeten its proposal to support carbon prices after the first one was rejected in April, as politicians reflected industrial concerns on energy prices. Carbon prices currently hover around €3 a tonne, too low to support investment in green technologies.

Higher carbon prices typically drive companies to use less coal or fuel and more natural gas. Energy-intensive industries argue that it makes them less competitive, especially as shale gas offers cheap energy to their American competitors.

The compromise adopted yesterday in Strasbourg should not make carbon permits skyrocket as the oversupply is huge, and industrial activity remains weak. Some 900 million permits out of a 2 billion surplus will be taken out of the EU Emissions Trading System to try to create scarcity.

But this mechanism will be allowed to happen only once and the decision still has to be approved by national parliaments. Some amendments planning to set aside carbon permits in a fund within the European Investment Bank were surprisingly rejected.

Germany has failed to take a formal position as the economy ministry opposes it due to concerns it will hurt competitiveness, while the environment ministry supports the plan. 

Carbon prices jumped by more than 12% on the news, without erasing previous losses. A permit cost €4.8 on Wednesday, still 40% less than four months ago, and 70%  less than three years ago.