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EU Lawmaker Groote Offers Compromise Changes to Carbon Fix

The European Union could temporarily curb the supply of carbon permits once in the period up to 2020 provided the intervention wouldn’t undermine the global competitiveness of EU manufacturers, under a compromise proposal by a leading lawmaker.

Matthias Groote, chairman of the European Parliament’s environment committee, proposed amendments late yesterday in Strasbourg, France, aimed at securing a majority on the panel for the European Commission’s plan to tackle a glut of permits, according to a document obtained by Bloomberg News. The EU draft strategy, which would temporarily help emission prices recover from a record low, has divided national governments, industry organizations and members of the Parliament.

The Parliament’s approval is necessary for the first element of the stop-gap: a change to the EU carbon-trading law that also requires support from governments. At stake is the fate of the 54 billion-euro ($73 billion) EU cap-and-trade system after an excess of allowances caused by an economic crisis drove prices down as much as 91 percent from a record in April 2006.

The commission may in “exceptional circumstances” adapt the timetable for carbon-permit sales “where an impact assessment shows that impact of such intervention on installations exposed to a significant risk of carbon leakage is limited,” under the new proposal. “The commission shall make no more than one such adaptation.”

Carbon Prices

Carbon leakage refers to a situation in which tougher emission curbs in one region lead industries there to transfer production to parts of the world with looser climate rules.

EU Climate Commissioner Connie Hedegaard, the architect of the plan to bolster carbon prices, signaled that support among Parliament members is growing and expressed confidence about the outcome.

“I have been meeting with a lot of parliamentarians these last days and I think that more and more in the European Parliament realize what is at stake,” Hedegaard said in an interview today in Strasbourg. “I also know that Mr. Groote is working extremely hard to get the votes that he needs on board and to make Parliament do the right thing. So I’m pretty confident.”

First Step

The strategy designed by the Brussels-based commission, the EU’s regulatory arm, is to delay the sale of 900 million carbon allowances from 2013-2015 to 2019-2020. In the first step, a carbon-law change would reassert the commission’s right to decide about the timing of auctions to avoid legal uncertainty. In the second stage, governments would consider a measure setting out the details of the delay.

The compromise solution offered by Groote, a German socialist, would replace some of the changes to the commission’s one-sentence proposal sought by members of the assembly’s environment committee last year. The 42 amendments they put forward included denying the EU regulator the right to postpone auctions, ensuring any intervention can take place only once and accelerating the pace of greenhouse-gas reductions in the cap-and-trade program.

Groote also proposed clarifying in a non-binding portion of the emissions-trading law that the commission can intervene only once. That part, known as a recital, would also include a reference to carbon leakage.

Non-Binding Recommendation

The Parliament’s industry committee, which has an advisory role in this process, last month issued a non-binding recommendation that lawmakers reject the commission’s proposal. Carbon prices tumbled to an all-time low of 2.81 euros a metric ton after the panel’s vote.

Carbon permits for delivery in December rose as much as 4.8 percent to 4.38 euros on the ICE Futures Europe exchange and traded at 4.22 euros at 11:43 a.m. in London. The contract pared its declined so far this year to 37 percent. The EU system, which imposes pollution limits on about 12,000 companies, doesn’t allow any price floors or ceilings.

The environment committee is scheduled to vote on the draft measure on Feb. 19. Its verdict will be a recommendation to the whole 754-seat assembly. The plenary vote on the carbon-law fix is tentatively scheduled for April 15 and Groote said last year he will try to bring it forward by a month.

Before the plenary vote, member states represented by Ireland, which holds the EU presidency in the first half of this year, will start negotiations with the parliament members to reconcile their positions on the proposal.

Green Light

Should the Parliament approve the carbon-law change, EU governments would get the green light to vote in a separate procedure on a so-called backloading measure that would set out the details of emission-permit auction delays.

While the commission’s proposal has more prospective supporters than opponents among the EU’s 27 governments, it still needs support from at least some of the seven nations that haven’t adopted official positions in order to win approval, three EU officials with knowledge of the matter said last week. Votes in the European qualified-majority system are weighted by each country’s size.

Among the seven countries, Germany, Portugal, Hungary and Malta are undecided, while Greece, Cyprus and the Czech Republic have voiced concerns about the draft measure, said the officials, who asked not to be named, citing policy.

Separately, the commission also set out on Nov. 14 six options for a long-term overhaul of the EU emissions trading system, also known as the ETS, ranging from adopting a stricter pollution-reduction target to price-support mechanisms. The EU regulator said it will consult companies, experts, non-governmental organizations and member states on the so-called structural measures on March 1 and April 19.

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