The future of the EU emissions trading scheme (ETS) has been thrown into doubt after MEPs voted to reject plans by the European Commission to boost the price of allowances, which are now hovering around €3
The commission had wanted to delay the auctioning of 900 million allowances for five years to counteract the huge surplus of permits currently in the market, which has seen their price collapse. It believes that the process, known as “backloading”, would help the price of permits recover to €12 by 2015.
Despite support from several member states, including the UK, Denmark and France, MEPs in Strasbourg voted 334 to 315 against the measure.
The refusal by MEPs to support the plans for backloading leaves the ETS in chaos and will result in continued rock-bottom prices for carbon, according to market analysts Point Carbon.
Climate change commissioner Connie Hedegaard described the decision as a bad day for European emissions trading. Similarly, Richard Gledhill, a partner at PwC specialising in climate policy, carbon trading and markets, said the vote was another body blow for carbon markets in Europe.
“This hardly chimes with all the [EU] talk of ‘increasing ambition’ in the UN climate negotiations. Urgent reform is now needed to restore confidence in the markets and in the political process, ahead of the 2015 target for a global deal on climate change,” said Gledhill.
Chris Davies, Liberal Democrat MEP and columnist for the environmentalist, claimed that short-term financial concerns had overridden the desire to support low-carbon technologies. “MEPs have turned their back on the future,” he told the European parliament, condemning UK Conservative MEPs who had largely voted against the backloading proposals.
“By refusing to endorse the commission’s proposals I fear that MEPs have betrayed Europe’s long-term economic interests,” he said.
The short-term future of the ETS will now depend largely on the outcome of the European council meeting on 27 June. “We still have to hear from the council before we get to the end game for the [backloading] proposal,” commented Hedegaard, noting that the Irish presidency of the EU had signalled that it would prioritise the issue.
The council has yet to adopt a position on backloading, but Davies told the environmentalist he believed it would fail to reach an agreement at the June meeting.
A decision will “probably have to wait until after the German election in September,” he said, because senior members of the German coalition government are split over whether to intervene in the European carbon market.
In rejecting the proposal to delay auctions, MEPs sent it back to the EU parliament’s environment committee to look again at reform, possibly amending the plans before allowing MEPs a further vote.
“It is likely that the issue will come back to parliament, with amendments from the committee to be tabled this month, and then a vote early in July,” said Davies. “So the fight will be on to reverse some of the votes of last time and take a lead.”
Meanwhile, a new report from the House of Lords committee on Europe, looking at investment in energy infrastructure across the EU, warns that, if the price of carbon under the ETS languishes for long, its credibility as a deterrent to new coal investment will be lost.
It also claims the uncertainty in ETS revenues makes it impossible for member states to budget effectively, and that the plummeting price of allowances has reduced a major source of expected EU finance for the development of low-carbon technologies such as carbon capture and storage (CCS).
The NER-300 facility to support CCS demonstration projects has declined massively in value as the ETS price has collapsed, says the committee.
