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06/12/2016

MEPs fail to agree on carbon market reform start date

Energy

MEPs fail to agree on carbon market reform start date

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Billy Wilson/Flickr

On Thursday (22 January) a European Parliament committee, rejected a previous vote to begin carbon market reforms in 2021, clearing the way for another Parliament body next month to back action to prop up the EU Emissions Trading System (ETS).

To try to bolster carbon prices and spur industry to switch to greener energy, the European Commission proposed a plan to remove hundreds of millions of surplus carbon allowances (EUAs) from the market starting in 2021.

The UK and Germany, which back zero-carbon generation from nuclear and renewable power, have led calls to begin action by 2017. Utilities such as E.ON, seeking support for investment, also want prompt action.

Poland, dependent on carbon-heavy coal, and energy-intensive industry says the Commission proposal date of 2021 is acceptable..

Those divisions were echoed in the European Parliament.

http://www.euractiv.com/climate-environment/carbon-market-intrigue-european-news-518056

In the first of a series of votes, the industry committee initially rejected an amendment to begin reform in 2017 by a margin of two votes. They then backed 2021, by a margin of one.

But some politicians said the margin was so narrow as to be unconvincing, and following a brief adjournment, the committee rejected the session’s votes.

http://www.euractiv.com/climate-environment/backloading-amendment-return-sec-news-519285

The confusion knocked prices on the EU ETS lower. The benchmark EUA price fell as much as 5.5% to €7.00 after the voting. It later recovered to €7.15, down around 3.5%. Prices fell because there had been expectations of clear backing for a 2017 date, one trader said on condition of anonymity, but he predicted the market would recover because “2017 is still on the table”.

Antonio Tajani, a vice-president in the European Parliament and former European commissioner for industry, had tried and failed to get agreement on a compromise date of 2019. He said the industry committee’s failure to adopt a position meant the Commission’s proposal, which he described as a balance between the needs of industry and climate policy, stood.

But other politicians said it looked more likely than ever that the environment committee next month would overwhelmingly back 2017 and it was remarkable that even the relatively conservative industry committee had failed to agree on 2021.

Oversupply of ETS carbon allowances and demand slackened by weak economic growth across Europe have created a glut of more than 2 billion permits, meaning the system is no longer effective as the EU’s prime tool for cutting carbon emissions.

Once any agreement has been reached on reform, which needs approval from a plenary session of parliament and from member states, removed carbon allowances would be placed in a Market Stability Reserve and returned to circulation if demand rises. 

Positions

?Joris den Blanken, Greenpeace EU climate policy director, said: "A start of the carbon market reform in 2021 is too late and will increase pressure on governments across Europe to put national standards and taxation in place in the coming years. We can't wait forever on the EU carbon market to drive cleaner and more efficient production."?

Justin Wilkes, deputy CEO of the European Wind Energy Association said, “Lawmakers have missed the chance to lay down a marker on strengthening the ETS. At the moment, the system that was meant to spark Europe’s transition from a carbon economy to a climate economy is dead in the water and unless we see a sweeping overhaul, that’s not going to change in the near future. An early start date is necessary to put a more robust price tag on carbon. We will reach a higher carbon price in the future but if the start date of a carbon market reserve is not brought forward, Europe is simply kicking the can down the road."

Vice-president of social democrats in the European Parliament, Kathleen Van Brempt MEP said, “This short-sightedness of the right is appalling. A strong ETS is needed to modernise European industry, and make it competitive as well as sustainable. Although we defeated the right-wing groups by rejecting the opinion in the final vote, we also lost the opportunity to start building an effective ETS, but we Socialists and Democrats will keep up the pressure and insist on a significant strengthening when the environment committee debates the long-term fate of the ETS.” 

Fredrick Federley MEP, coordinator for the liberal and democrat group on the EP's ITRE committee said today after the vote, "A 2017 start date is now more likely than ever. This should be welcomed, as the current EU ETS system is fundamentally flawed. Without action to address the current surplus, we risk a lost decade of low carbon investment, increased uncertainty and higher costs."

The spokesperson on environment and climate change of the social democrats in the European Parliament, MEP Matthias Groote, said, "The vote today clearly shows that we need a more progressive path. We the Socialists and Democrats want a more ambitious proposal, in order to have stability and predictability in the EU's ETS. This is why the MSR has to come into force as soon as possible. Stability is key for all sectors to make the necessary investments for sustainable economic growth and job creation. This is why the environment committee will work on an ambitious and progressive proposal, which will strengthen the EU's ETS."

WWF climate policy officer Sam Van den plas said, “This unjustified transfer of wealth from EU member state budgets to energy intensive industries yet again damages the credibility of the ETS as a pollution pricing mechanism. How can the EU Commission expect an international carbon market to develop on the basis of such an untargeted approach to carbon leakage as in the case of the EU?”

Background

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.

But carbon prices are currently far too low to provide that incentive, with prices currently hovering at €5 per tonne, below the €20 or €30 analysts believe is needed to make utilities switch to lower carbon energy generation.

To deal with the issue, the European Union has approved a "backloading" plan, which seeks to delay the sale of 900 million carbon permits until later this decade and prop up carbon prices.

The European Commission’s latest proposal is to establish a "market stability reserve" of carbon permits to curb supply in the ETS.

>> Read: Europe opts for ‘auto-backload’ of carbon markets

Further Reading

European Commission

Press articles