A planned European Parliament vote today (26 February) on fast-tracking negotiations with EU states over carbon market reform was inexplicably cancelled as rumours and counter-rumours swirled around Brussels.
With a turnover that reached around €90 billion in 2010, the EU's Emissions Trading System is the world's largest carbon market. Around 80% of it is traded in futures markets and 20% in spot markets.
The ETS aims to encourage companies to invest in low-polluting technologies by allocating or selling them allowances to cover their annual emissions. The most efficient companies can then sell unused allowances or bank them.
The scheme has proved influential. Australia’s is due to begin carbon trading in 2015, Thailand and Vietnam have both unveiled plans to launch ETS’s, China is due to launch pilot schemes across several provinces this year, and India will ring the bell for trading on an energy efficiency market in 2014. Mexico and Taiwan are also planning to introduce carbon markets.
The vote had been seen by many as a formality after parliament’s environment committee last week backed an EU proposal to ‘backload’ or delay the auction of 900 million carbon allowances to boost prices by creating uncertainty about their future supply.
But late yesterday afternoon, Matthias Groote, the German Socialist MEP and chairman of the environment committee, tweeted: “Backloading is not the subject of tomorrow's session ENVI (environment committee) session. All other message are incorrect.”
Carbon prices immediately sank 15 cents with Marcus Ferdinand, a senior analyst for Reuters Thomson Point Carbon, telling EurActiv that markets now feared “more uncertainty and to the downside”.
“This could mean that Groote has decided that the majority in Envi is not convincing enough to make a decision and is waiting for the whole parliament to provide a mandate,” he said.
A plenary vote on the carbon market fix is still planned for April, despite rumours that it could be brought forward to March 11.
However, asked by EurActiv yesterday if he was confident of a victory in the plenary vote, Groote replied bluntly: “No”. That was shortly before his tweet.
European Council amendment
The cancelled vote appeared to catch the Irish presidency on the hop. A draft European Council amendment which would have formed the basis of negotiations in the ‘trialogue’ between Parliament, the Council and the Commission had already been written, using almost identical language to the environment committee text last week.
The draft, which EurActiv has seen, notes a surplus of 955 million carbon allowances in the EU’s Emissions Trading System (ETS). Without structural measures, it says this will increasingly depress prices and low carbon investments, and risk fossil fuel lock-ins.
The medicine the paper prescribes will be familiar to MEPs on the environment committee.
“For the purposes of legal certainty and market predictability, it should be clarified that, in order to ensure an orderly functioning of the market, the Commission is able in exceptional circumstances to adapt the auction timetable” for carbon allowances, the text says.
Liberal MEP Chris Davies, an environment committee member, said the draft “is more positive and supportive paper of the Commission’s paper than I’d expected.”
“I don’t think the presidency would have tabled it if they thought they would be humiliated,” he added.
Germany on the fence
Support for the amendment appears to be growing among EU states in the Council, although Davies admitted that it would “help enormously if Germany came off the fence in the right way.”
Berlin is still undecided on the carbon market issue and Chancellor Angela Merkel’s cabinet remains split, with the Environment Minister Peter Altmaier supporting it and the Economy Minister Philipp Rösler opposed.
In the European Parliament, the issues has revealed a traditional left-right divide with the majority European People's Party bloc and European Conservatives and Reformists opposed to backloading, while the Socialists and Democrats, Greens, most Liberals and the far-left GUE bloc support it.
Some Conservatives have broken with their party lines and five supported the proposed short-term carbon market fix in the last environment committee vote. In general, the anti-backloading camp favours delaying the ‘trialogue’ process until after a plenary vote, which they hope to win.
Obstacles clutter road to backloading
But even if carbon market reform is pushed through, with European Parliament committee votes, EU climate change committee meetings and parliamentary scrutiny periods still to come, the road to backloading could be cluttered with obstacles until next year.
Worryingly for its supporters, it may even then not deliver the sort of quick results needed to keep Europe on track for decarbonisation.
“A lot of politicians are jumping up and down here complaining about anything that leads to even the slightest increase in electricity prices,” said Davies. “But nobody expects carbon prices to soar or even reach double figures because of backloading.”
“The reality is that backloading is likely to have a minimal effect on prices,” he added. “It is just a mechanism to try to ensure that the carbon market can continue to function.”
- April 2013: Potential plenary vote in European Parliament on European Commission proposal for ETS reform
- 2014: India due to begin energy efficiency trading
- October 2014: Thailand due to launch a voluntary emissions market
- 2015: South Korea due to begin emissions trading
- 2018: EU and Australia due to link emissions trading schemes