April 16 (Bloomberg) -- The European Parliament is likely to back a plan to bolster carbon prices, paving the way for the first element of the measure to become law by June, said the lawmaker steering the proposal through the bloc’s legislature.
The assembly is voting today on a change in the bloc’s emissions trading law to enable the European Commission to postpone the sale of some carbon permits in the 54-billion-euro ($71 billion) cap-and-trade program, the world’s biggest. The so-called backloading plan, designed to bolster prices by temporarily alleviating an oversupply of emission allowances, has divided Parliament, governments and industry.
“I’m optimistic because there was more and more positive feedback last week,” Matthias Groote, the chairman of the European Parliament’s environment committee, said yesterday in an interview in Strasbourg, France. “The initiative by ministers to support backloading was useful.”
Environment and climate chiefs from six EU countries including the U.K., Germany and France stepped up pressure on members of the bloc’s Parliament to back the rescue of the eight-year-old emissions trading system in a letter last week. Opponents include the Parliament’s biggest political group, the European People’s Party, which argues it will hamper economic recovery by raising energy costs and undermining companies’ competitiveness.
“We have a negative climate in the European Parliament and it was not easy to negotiate with one party,” Groote said, without being more specific.
EU carbon permits for delivery in December fell 0.2 percent to 4.76 euros a metric ton on the ICE Futures Europe exchange in London yesterday. They slumped to a record-low 2.81 euros a ton in January from an all-time high of 31 euros in April 2006 as a recession curbed industrial output, damping demand for emission rights.
“Our base-case expectation is that the plenary will support the backloading plan with a narrow majority, in which case we anticipate that emission allowances rise to 5.80 euros to 6 euros a ton by the end of the week,” Bloomberg New Energy Finance said in a note yesterday.
Europe’s emissions trading system is the bloc’s main tool in meeting greenhouse gas-reduction targets, which it does by issuing companies with tradable permits that they must surrender to cover their carbon output.
The 754-member Parliament is scheduled to cast its vote on the amendment to the emissions trading law that will enable the commission to decide the timing of carbon auctions at 12 p.m. in Strasbourg. If approved by the assembly and national governments, the measure opens the way for the EU to vote on rules to delay the sale of permits covering 900 million tons of emissions over the next three years and reintroducing, or backloading, them to the market in 2019 and 2020.
“Backloading is a political necessity at this stage,” said Andrei Marcu, a Brussels-based adviser at the Centre for European Policy Studies think-tank. “If it fails, the price may fall to 1.50 to 2 euros. The dynamics then become unpredictable.”
The backloading strategy, which doesn’t change the total number of allowances to be issued, is meant to be an exceptional measure before Europe decides on a deeper overhaul of the carbon market.
“If backloading doesn’t pass it will be more a political than economic issue,” said Georg Zachmann, a researcher at Bruegel, the Brussels-based economic think tank. “The measure doesn’t affect the scarcity of allowances in the system. It is a signal of political will. It is just a placebo that has no direct healing consequences. I’m surprised by how controversial it is.”
The Parliament will make several decisions related to the carbon law fix today, including a vote on a proposal from members of the European People’s Party to reject backloading and an amendment to restrict the commission’s strategy.
The assembly will also decide whether to authorize the Parliament’s Groote to start talks with member states on the final wording of the legal change in a process known as a trilogue, which also involves the commission.
In the trilogue, member states will be represented by Ireland, which holds the 27-nation bloc’s rotating presidency in the first half of this year. The outcome of the negotiations will be subject to final approval by the Parliament and national governments before the amended emissions law enters into force.
“I hope we can start and finish the trilogue immediately so that we can vote on the results in May or June,” Groote said. “Ireland wants to finish work on this issue during its presidency.”
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