Politicians vote in favor of plans to withold EU carbon permits

EU politicians have passed a proposal to set aside carbon permits in the next phase of the bloc’s emission trading scheme (ETS).

The decision, made yesterday by the EU Parliament’s industry committee, will now pave the way for the EU Commission, the executive power that monitors the carbon market, to take measures that “may include withholding of the necessary amount of allowances” from the 2013-2020 phase, if prices on the ETS continue to fail.

30 European countries are included in the emission trading scheme, which covers nearly 11,000 power generators and industrial plants on the continent, and around half of the bloc’s carbon emissions.

The ETS forces companies to purchase carbon permits to cover their emissions output. However, since June last year, carbon prices have fallen by more than 50 percent amid Europe’s worsening debt crisis. At the same time, the over-supply of permits has caused the price of EU Allowances (EUAs) to fall below €7, a figure much lower than what is needed to help drive Europe towards a low-carbon economy. With the EU carbon market flooded with millions of permits, analysts are not expecting the demand for permits to overtake supply for another decade.

“The oversupply seems to be overwhelming,” one trader said back in November. Analysts now predict that there could be as many as 1.4 billion surplus EUAs in the next phase of the emission trading scheme.

For the European Commission to intervene with the EU carbon market it will have to gain approval from the 27 environment ministers on the EU council. However, it has been well publicised that member states are divided on whether to impose further carbon costs on their industries. Poland for example, a country heavily reliant on its coal industry, is extremely concerned about the impact that setting aside carbon permits could have on its economy.

Parliamentary negotiations are expected to be even tougher still, given that even members of the European Commission are divided on whether carbon permits should be set-aside. While Climate Commissioner Connie Hedegaard is firmly in favor with the proposals, Antonio Tajani, the head of the Commission's industry department, warned yesterday against intervening in the EU carbon market.

“The pricing of allowances should be left to the market. Prices would recover by themselves as soon as the economy were to pick up,” Tajani told journalists prior to yesterday’s vote.

 

Images: Climate Action Stock Photos