EU’s Stomach for Tighter CO2 Cap to Be Signaled by Parliament

The European Union’s willingness to tighten emission caps on energy and manufacturing companies will be put to a test tomorrow when EU lawmakers vote on whether to urge the cancelation of some carbon-dioxide allowances.

The European Parliament will give its verdict on a draft resolution asking EU regulators to propose legislation that would eliminate a share of Europe’s CO2 permits in a bid to boost their prices. The assembly’s biggest faction, the Christian Democrats, opposes the request while other political groups including the Greens back it. As a result, the outcome of the vote at about midday in Strasbourg, France, is open.

A call by the 27-nation Parliament to eliminate some CO2 permits would go further than the assembly’s support to date for the mere option of temporarily setting aside some emission allowances due to be auctioned as of 2013. The Parliament’s industry committee last month inserted a reference to the temporary set-aside option into a planned energy law and aims to win backing for this provision from EU national governments.

The political debate in Europe over the possibility of tightening the supply of EU-CO2 permits has intensified in recent months as their cost has slumped. The euro-area economy is projected by the EU to contract this year for the first time since 2009. Allowance prices dropped to a four-year low in January because of oversupply.

At stake is the credibility of the world’s biggest emissions-trading market, which imposes pollution quotas on more than 11,000 facilities including plants owned by Electricite de France SA, Europe’s biggest power generator, and Royal Dutch Shell Plc (RDSA), the region’s largest oil company. The cap-and-trade system is a leading EU tool to fight climate change.

‘Significant Amount’

The draft 18-page resolution that the EU Parliament is due to vote on tomorrow is about Europe’s climate goals in general. The text says the European Commission, the EU’s regulatory arm, should set aside by year end a “significant amount of allowances so as to restore scarcity” and then propose a “legislative act to enable such allowances to be eliminated.”

The text is going to the floor of the 754-seat Parliament from its environment committee, which gave its approval in late January over the opposition of Christian Democratic members of the panel.

This political group, with 271 members in the Parliament, has put forward an amendment to the draft resolution that would delete the reference to eliminating emission allowances and express support for the idea, “if appropriate,” of temporarily setting aside permits.

To contact the reporters on this story: Jonathan Stearns in Strasbourg, France at jstearns2@bloomberg.net; Ewa Krukowska in Brussels at ekrukowska@bloomberg.net.

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net; Stephen Voss at sev@bloomberg.net.

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