The European Parliament’s Environment Committee has called for the withdrawal of 1.7 billion carbon quotas in 2019. This proposal must be negotiated in the Council before being adopted. EURACTIV France reports.
The two main parties in the European Parliament, the European People’s Party (EPP) and the Party of European Socialists (PES), reached an agreement on Tuesday 24 February that could lead to an elusive consensus on the carbon market. The committee’s proposal to remove 1.7 billion quotas from the market will likely be implemented sooner than planned, in 2019 rather than 2021. But some hoped for a date in 2018, and feel the approach is too timid for the scale of the problem. The tonnage price of CO2 fell after the vote, which came one day after the price had climbed by 5%.
A strange compromise
The method and timetable for the withdrawal of quotas from the market formed the main subject of the debate. The Parliamentary Committee had proposed to remove the quotas in 2021, and the Council then decided they should be reinjected into the system in the future.
The result was a strange compromise: under the current proposal, the quotas would be withdrawn on 1 January 2019 although the EU ETS does not follow the calendar year (quotas are handed out on 1 April, and companies have until 1 May the following year to comply). The quotas removed from the market in 2019 would then not be reintroduced into the system. This, it is hoped, would force up the price of CO2 emissions.
Platts predicts that the tonnage price of CO2 will increase by €17 in the long term if this more ambitious position is adopted. According to eReuters, the price of a ton of CO2 will reach €20 by 2022.
An unclear future
MEPs have called for new solutions to the problem of “carbon leakage”, where certain industries take their activity elsewhere because of the EU’s constraints on CO2 emissions. Until now, the solution has been to hand out free quotas to these sectors.
Nine member states released a joint declaration on Monday, in which they called for ambitious reform to the carbon market. “By 2021, the level of surplus in the EU ETS is likely to be significantly higher according to market analysts, with the resulting risk that critical low carbon investments needed this decade, are further postponed into the future, increasing decarbonisation costs and further undermining confidence in the system.”
The vote by the Environment Committee reveals the MEPs’ determination to patch up the ailing carbon market, despite the difficulties they face.
Parliament divided on carbon constraints
The Environment Committee has also given the rapporteur a mandate to negotiate the text directly with the Council, rather than taking it to the plenary, in order to strengthen their position. The European Parliament is still quite divided on the question of carbon restrictions, and the text would risk being diluted in the plenary.
In early February, the ITRE Committee failed to adopt a position on the subject. The Germans voted with the Greens in favour of an ambitious position, while the EPP group largely voted against strong restrictions on carbon emissions.
But the European Parliament will not have the final say on the matter, and several eastern member states may refuse the proposal in its current form.
Resuscitating the carbon market?
Among the Parliament’s positive new ideas for improving the carbon market, MEPs want to see half the revenue from the carbon quotas sold at auction to be used for projects to tackle climate change.
While Tuesday’s vote was perhaps not as ambitious as it could have been, it does open up the possibility of new reforms after 2020. The Commission plans to address the unsatisfactory long-term governance of the carbon market once the question of the stability reserve has been answered.