The European Parliament's Environment Committee has given its support to a compromise plan to boost the price of allowances on the EU's carbon market.
To become law, the proposal to temporarily remove some of the glut of permits that has weighed on prices still needs to win backing from a plenary session of the parliament next month in Strasbourg, and from EU member states.
Traders said the market had already priced in a positive vote and allowances on the EU Emissions Trading System (ETS) fell by 3.6% to €4.53 a tonne short after the vote on Wednesday (19 June).
After a defeat of the proposal in a full session of the European Parliament in April, the carbon price fell to a record low of less than €3 a tonne.
British MEP Chris Davies, spokesman for the Alliance of Liberals and Democrats for Europe on the committee, indicated that the deal was far from perfect.
In a statement after the vote, he said the plan “amounts to little more than a modest regulatory adjustment. It will maintain the operation of carbon trading but it will not provide a driving force to promote long-term low-carbon investments."
"We still need to agree on clear targets for Europe's CO2 reductions by 2030 to give investors greater certainty”, Davies said, “and we urgently need to secure a global agreement on measures to tackle climate change."
Green groups welcome deal
Campaigners welcomed the yes vote, although environmentalists say the proposal is very weak and will have a limited impact on prices.
But they hope it will be a stepping stone towards deeper structural measures, such as the permanent withdrawal of some carbon permits.
"With this vote the Environment Committee has sent an important political signal: there is still commitment to the EU's flagship climate policy," said Rob Elsworth of the campaign group Sandbag.
The carbon market plan was meant to be a quick fix for a market that has hit a series of record lows far below levels of €40 to €50 needed to drive a shift to lower carbon energy.
The proposal has met fierce resistance from heavy industry, which complains about anything that drives up the cost of energy in difficult economic times, and from Poland, whose economy depends on coal.
Germany has failed to take a stand ahead of elections in September.
Carbon prices have reacted to the twists and turns of the debate, which has dragged on for years. Price swings, often in excess of 10%, have been exaggerated by the weakness of the market.
Eurofer, the European steel industry association, voiced scepticism about the vote, saying backloading was an “unnecessary intervention” in the EU carbon market and that greater attention should be paid to industrial competitiveness instead.
“The EU emissions trading scheme is working as it should and Europe is well on track to meet its 2020 reduction targets,” says Gordon Moffat, director-general of the European Steel Association. “Instead of artificially raising carbon costs the Commission must address the competitive disadvantages for industry resulting from European climate and energy policies.”
There were some modifications brought by the Parliament’s vote which Eurofer welcomed as satisfactory, however. These include provisions to reintroduce carbon allowances that have been withheld from one year to the next and a new financing mechanism to reserve 600 million allowances for the development of innovative low-carbon technologies.
“Of course these modifications might be regarded as improvements compared to the original version. It seems that there is less risk now of emissions allowances being removed from the market permanently,” Moffat said.
“Still, the proposal represents market interference as well as additional, artificial increases in energy prices. It would have been more helpful if all the political energy that went into meddling with the ETS would have been invested in policies that strengthen the competitiveness of European industry.”
Oxfam, the global anti-poverty group, said the Parliament committee vote had “sent a signal to markets that EU climate policy is here to stay”.
However, it criticised the compromise deal for weakening the European Commission’s original proposal “substantially”.
Lies Craeynest, Oxfam’s EU climate change expert, said: "The upcoming structural reform of the ETS will need to be much more ambitious to help stave off dangerous climate change which threatens the food security of millions around the world.
“The proposal for a new fund makes lots of sense but it should be aimed at funding real climate solutions at home and meeting the EU’s promises to help poor countries deal with climate change abroad, rather than propping up energy-intensive industries.”
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 similar schemes, 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.
- 1-4 July: European Parliament to vote on proposal at a plenary session in Strasbourg.
- DG Climate: Structural Reform of the ETS
- DG Climate: Carbon market reform press release
- DG Climate: Q&A - Emissions Trading
- DG Climate: EU ETS
- DG Climate Action: ETS Legislation
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