The EU's flagship scheme for cutting carbon emissions suffered one of the most serious setbacks in its chequered history on Tuesday (16 April), when MEPs voted against a proposal to shore up the price of carbon in the Emissions Trading System (ETS).
The proposed reform – known as "backloading" – aimed to reverse the plummeting price of carbon that has resulted from a surplus of permits in the ETS market. If successful, the reform would have resulted in the postponement of a series of auctions of carbon permits.
But MEPs in Strasbourg voted 334 against the reform, with 315 in favour, leading green campaigners to condemn the defeat as a "monumental failure" to mend the carbon trading market, which is Europe's flagship climate policy and the biggest in the world. "They have lost all credibility on climate leadership," said Doug Parr, Greenpeace UK's chief scientist.
Rob Elsworth, a campaigner at emissions trading NGO SandBag, said: "The outcome of the vote is unfortunate. It sends the wrong message to companies, to the public and the international community. It's now incumbent on those MEPs who said they support the long-term success of the EU ETS to act to prevent the EU's climate policy from drifting dangerously off course. In the meantime, member state climate policies are now likely to become more fragmented and this will have a negative impact on the common market."
The vote was lost partly owing to a rebellion by the UK's Tory MEPs, who defied David Cameron to reject the plan to postpone the auction of a substantial number of carbon permits.
A spokesman for Conservative MEPs said: "The EU ETS was established as a market-based mechanism and must continue to operate according to market principles. We are therefore concerned about the impact of commission intervention to adapt the auction timetable in order to manipulate the carbon price. We fear it will only serve to discourage green investments, affect transparency, encourage further carbon leakage, and undermine much-needed market predictability as the EU economy strives to find a way out of the economic crisis."
Today's vote crushes hopes raised in February that reforms would go ahead, after a key committee of the European parliament judged in favour of the proposal.
The short-term fix that the reforms would have introduced was known as "backloading", whereby some of the allocations of permits by member states to their industries would be held back from auction for several years. At present, auctions of permits take place on a regular basis, in which companies bid for any they need above the free allocation that some receive.
But as the market is already swamped, if the auctions were to take place as usual the price could fall even further. Under "backloading", some of those auctions would have been postponed until later in the current phase of the scheme, which runs to 2020.