EU emissions trading scheme saved - for now
- 19 Feb 2013, 09:30
- Mat Hope
A major vote in the European Parliament today may
have saved the European Union's emissions trading scheme (ETS) -
for now. The scheme was on
"life support" earlier this year as an oversupplied market
set the carbon price plummeting to record lows. Now, the approved plan should
boost the carbon price by €2-3 and prevent 900 million tonnes of
carbon dioxide from being released into the atmosphere.
The European Parliament Environment, Public Health
and Food Safety committee (ENVI) today voted by a comfortable
majority to temporarily prevent 900 million permits being released
into the ETS.
The EU climate commissioner,
Connie Hedegaard, said the plan
would "stop overflooding an already overflooded market". The
vote comes almost a month after an advisory committee
recommended Parliament reject the
Damien Morris from carbon market
campaign group Sandbag says the approval is "a
promising first signal that policymakers recognise the current
threats to the EU ETS and are prepared to salvage it".
Companies buy and sell permits to emit carbon dioxide
under the EU ETS. If they emit less than their permits allow, they
can sell the excess for a profit. The scheme is meant to reward
those that cut their emissions, and it relies on a shortage of
The ETS is not uncontroversial - 92 environmental
groups signed a letter earlier this month calling for the
flawed ETS to be replaced with a more effective climate
One of the ETS's main problems is over-supply. There
are currently too many permits in the system which means that
polluters don't need to cut their emissions and the price of
permits has slid to record lows. The over-supply is partly due to
economic slowdown - demand is low, so
power plants don't need all their permits.
Backloading means the withdrawal of
900 million permits - each representing
a tonne of carbon dioxide - from the market between 2013 and 2015.
They will be released gradually back into the market in 2019 and
2020. Market analyst
Reuters Point Carbon expects the
approval to drive the carbon price up by €1-2, to around €7 per
tonne of carbon dioxide. 30 industry organisations
yesterday signed a letter encouraging
the committee to approve the measure.
The ENVI committee
The committee is made up of members of the European
Parliament (MEPs). ENVI must now guide the measure through a vote
by the whole parliament. The
UK, France and Belgium have been the major
supporters of the plan.
MEPs from Poland came out against the measure in the
build-up to the vote - arguing Poland would
lose 1 billion euros in revenue from
permit sales. But the commission dismissed their arguments, arguing
backloading would benefit all European economies.The Czech
Republic, Slovakia, Hungary, Bulgaria and Romania also
oppose the plan.
In the end, the measure
passed by 38 votes to 25 - a "larger
than expected majority", according to Sarah Deblock from the
International Emissions Trading Association.
What it means in the long-term
Even with the backloading measure, the ETS may need
greater reform in the long term. Ultimately, some or all of the
withheld permits may need to be cancelled.
Reuters Point Carbon says if the permits are not
cancelled, then prices could remain between €8 and €10 per tonne
between 2013-2015 and then collapse to €6 in 2020 when the permits
Dr Cameron Hepburn of the London School of Economics
says that the while the vote is "good news", it ultimately "does
nothing to address the need for fundamental reform, especially a
credible, rules-based price stabilisation mechanism".
It's also not clear whether all the performance over
the vote was really necessary. Laura Dzelzyte from market traders
Partners tells Carbon Brief the European Commission can
actually adjust the number of permits in the system without
parliament's immediate say so.
a directive, the commission could have just withheld the
permits. If parliament doesn't raise any objections within 3 months
- which it rarely does - then the move becomes law.
Dzelzyte says today's vote was "just to be sure"
parliament wouldn't object at a later date, rather than a necessary
move right now. The commission may still act alone to enact further
Backloading seems to have worked for now - and the
vote was an important symbolic moment showing key players are
behind the plan. But the EU ETS needs more than a temporary measure
if it's going to carry on working as an effective climate policy.
Deblock says the vote "is a positive sign that will help market
confidence" but is not a "standalone measure" - for the ETS to
remain healthy there needs to be greater structural reform.
Update: Next steps
The next step is for the ENVI committee to vote on
whether to take the backloading proposal to a meeting with the
European Council and commission. The ENVI committee will try to
find common ground with colleagues from the industry committee that
currently opposes the plan - both groups of MEPs have to agree if
the proposal is to proceed.
That vote will take place on February 25 or
On the news of today's vote, the carbon price
actually dropped by about one euro - to €4.09 per tonne. Reuters
Point Carbon market analyst, Marcus Ferdinand, says the fall was a
"classic buy on rumours, sell on facts reaction" - in other words,
the market expected this decision but remains unconvinced that the
measure will pass the whole process, so the value of the permits is
He added while today's vote was "one small step in
the process", all it really did was "buy some time" for more