The European Parliament approved a proposal to begin reform of the world’s biggest carbon market in 2019, clearing the last major hurdle before the plan can become law.
EU carbon allowances, at around €7.50 per tonne, were little changed after the vote, which had been expected.
Discussions have dragged on for months over the proposal to begin operating a Market Stability Reserve (MSR) to remove some of the surplus of carbon allowances that has depressed prices on the EU’s Emissions Trading System (ETS).
The text negotiated with the Council, representing the 28 EU member states, was approved by 495 votes to 158, with 49 abstentions, the Parliament said.
Ivo Belet, a Belgian from the centre-right European People’s Party, who has steered the debate in Parliament said the vote was “an extremely important step” and had strengthened the credibility of the European Union ahead of climate talks in Paris at the end of the year.
“This reform puts Europe on the right track to achieve its ambition of 40% less CO2 emissions by 2030,” compared to 1990 levels, he said in a statement.
“The Greek crisis is so urgent that it puts everything else aside, but climate is something that cannot wait,” he said in a debate early this week.
Following the vote in a plenary session of the Parliament in Strasbourg, the reform only requires a sign-off from member states to become EU law.
It involves setting up a Market Stability Reserve to store surplus carbon allowances that have piled up due to oversupply and economic slowdown.
The reserve also could release the pollution permits in the event of higher demand.
Jos Delbeke, director general of the European Commission’s climate action department, said as many as 1.6 billion allowances could be removed from the market where a surplus of them has depressed carbon prices. There are currently 2 billion allowances in excess on the market, according to the Parliament.
Energy intensive industries
Agreement was complicated by Poland, whose economy relies heavily on coal, the most carbon-intensive of the fossil fuels. It led opposition to any action before 2021, the reform date initially proposed by the Commission.
Energy-intensive industry also raised concerns that reform before then would increase their costs and could drive investment into other areas of the world, a shift known as carbon leakage.
Dow Chemical, for instance, says energy-intensive industries must continue to receive 100 percent free allowances up to an EU benchmark to cover its exposure to the ETS.
“For energy-intensive industries (steel, chemicals, glass, etc.) achieving less CO2-emissions is a daunting task and requires important investments,” said Ivo Belet.
“We need to ensure sufficient guarantees to these companies to prevent them from delocalising their production facilities to countries outside the EU that have less stringent climate policies (‘carbon leakage’). This will be a crucial element in the next step of the ETS reform, which the European Commission will present next week,” added Mr Belet.
Rewarding best practice
To reward best practice, the Commission, the EU executive, uses a benchmarking system that gives free allowances to cover 100% of emissions costs for top-performing installations.
Proposed post-2020 market reforms will include a reassessment of how free allowances are awarded and are expected to be published in Brussels on 15 July.
According to a draft seen by Reuters, 400 million allowances will be sold to raise revenue for an innovation fund for low-carbon technologies.
Non-government organisations say the proposals give too much to business and nations such as Poland.
The plan got the green light in May from the EU’s executive, and member states.