European Parliament votes in favor of rescue plan for EU carbon market

Clare Saxon Ghauri
3 July 2013

BRUSSELS: Today the European Parliament passed a vote to save the EU’s Emissions Trading Scheme (ETS), the world’s biggest carbon market, with a plan to delay carbon permits released to the market.

Today’s positive vote is an important boost for the future of the ETS and will help increase carbon prices. The higher carbon price is crucial to providing the financial incentive necessary to encourage carbon emitting industries to switch to cleaner energy sources.

Backloading plan

Delaying, or ‘backloading’, the release of carbon permits, aims to counteract the very low carbon prices seen in recent years. The low prices were caused by the oversupply of permits from governments, combined with reduced demand from industry as a result of Europe’s economic recession.

Some of the traded permits will soon be temporarily removed, in order to raise the carbon price. Although there has already been a slight increase, the immediate impact is not expected to be significant.

The rescue plan is a decision which has divided opinions of European Parliament members. An initial version of the plan to delay permits was narrowly voted down in April, which prompted a 40% fall in the carbon price. The Climate Group CEO Mark Kenber called this decision a 'missed opportunity, at odds with the evidence of a low carbon economy’.

Next steps

Today’s move is seen as a compromise because it limits the Commission’s intervention to a one off measure, as well as limits the amount of permits that can be withdrawn to a maximum of 900 million. This figure is significantly lower than the size of the oversupply in the market.

Thurstan Wright, Carbon Rating Analyst, IDEA Carbon, commented: “Whilst it is important to note that the agreement is a compromise proposal, it would have been curtains for the EU ETS if it had failed. The next steps are to get this through the European Council, via the qualified majority voting system of the EU. Germany’s position on this is very important. Hopefully today’s result will encourage Europe’s economic powerhouse to get off the fence and take a stance on this before its September election”

The deal also includes a reserve of 600 million permits for a fund to develop clean technology.

Damian Ryan, Senior Policy Manager, The Climate Group, said: “Today’s vote is a positive step forward for the future of EU-ETS. However, further reform is required if carbon prices are to rise to levels that will drive positive and transformative change in Europe’s economy. The ETS needs reforms that permanently remove the oversupply of permits rather than simply delay their release.

“Coupled with other low carbon policies, particular for energy efficiency, a higher carbon price to encourage greater clean tech investment is integral to a robust emission reductions plan for Europe. Clean energy and energy efficiency investment is the cornerstone of a prosperous low carbon European economy.”

Related news:

Interview: Matthew Gray on the impact of the EU ETS

EU carbon "backloading" decision at odds with evidence of low carbon economy

China and Japan experts discuss cap and trade schemes at debut Hong Kong workshop

By Clare Saxon

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