A patched-up plan to shock Europe’s zombie carbon markets back to life will pass a plenary vote at the European Parliament on Wednesday (3 July), but this will only "buy time" for more fundamental reform, says the chairman of the Parliament’s environment committee.
“The indications are that we will win,” said German MEP Matthias Groote (Socialists and Democrats). “The proposal will be going through.”
“But backloading is only an instrument to buy the necessary time to maintain the Emissions Trading System (ETS) as we need structural reform,” he added. “If the carbon price falls below €3 a tonne, it will have no more effect.”
The EU’s original proposal to ‘backload’ or temporarily withhold 900-million carbon allowances in a bid to raise prices, was defeated in a European Parliament plenary vote in April.
Since then, MEPs from the centre-right EPP, liberal ALDE and the S&D groups have thrashed out a series of compromises to soften the plan's impact on heavy industrial users of energy such as the steel or chemicals sector. These include:
- Diverting two-thirds of the money raised into an innovation fund for energy-intensive industries;
- Ensuring that allowances could only be backloaded if the Commission determines that this will not cause ‘carbon leakage’ or relocations abroad;
- Forcing all allowances withheld in 2014 to be reintroduced to the market in 2015.
Groote insisted that the proposal would still raise carbon prices – though “not dramatically” – and denied that the heavy industry fund was a fossil fuel subsidy in disguise.
“It is a compromise,” he said. “I am in favour of set-asides [the permanent deletion of excess allowances] and [the proposal] is not 100% my wish, but we need a majority.”
The carbon leakage measure could be voted on separately, he added.
If the proposal was passed, negotiations between the European Council, Commission and Parliament could begin after – or during – the summer break, Groote said. If it was defeated this time, “then it is dead,” he added.
Yesterday (1 July), 41 major businesses endorsed a pro-backloading statement made by 12 EU ministers in the Financial Times newspaper.
A separate report by the environmental group Sandbag recently found that, because of over-allocation of allowances, the ETS will now drive ‘less than zero abatement’ from 2008-2020 and threatens to cancel out nearly 700 million tonnes of carbon abatement delivered by other EU climate policies.
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.
- 2014: First backloading could take place
- 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
- 2020: Phase IV of ETS due to begin
- 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
- Bloomberg New Energy Finance: BNEF
- Thomson Reuters: Point Carbon
- International Emissions Trading Association: IETA
- EurActiv Poland: Parlament Europejski zatwierdzi? backloading