June 12 (Bloomberg) -- Climate negotiators from political groups in the European Parliament’s environment committee reached a tentative compromise on a fix for the world’s biggest carbon market, according to a European Union lawmaker.
The deal, which needs backing by political groups before a vote on the measure scheduled for June 19, will restrict the original proposal to delay auctions of some carbon permits in order to help prices rebound, according to Richard Seeber, a member of the European People’s Party. A majority of lawmakers from his group, the biggest in the EU assembly, was against the measure in the previous vote on April 16.
The price of emission allowances in the EU program slumped to a record in April amid a glut of permits aggravated by the economic slowdown. A strategy to temporarily curb the oversupply has divided EU governments, industry and members of the Parliament. After the assembly declined to support it in the first vote it was sent to the environment committee for further talks before the second plenary vote on July 2 in Strasbourg.
“Today, we found a compromise mainly between EPP, Socialists and Democrats, and Alliance of Liberals and Democrats for Europe, which is heavily improving the original proposal of the European Commission,” Seeber said in a telephone interview from Strasbourg, France. Support from the three parties would ensure a majority in favor of the compromise agreement.
EU carbon permits for delivery in December jumped as much as 8.3 percent, the most in five weeks, and closed 7.1 percent higher at 4.50 euros ($7.06) a metric ton on the ICE Futures Europe exchange in London. The contract lost about 86 percent in the past four years and fell to as low as 2.46 euros a ton.
The preliminary compromise ironed out today includes limiting the planned market intervention to a one-time move, capping the number of permits to be delayed at 900 million and a provision that postponed allowances won’t be permanently removed, according to Seeber. Installations under the EU’s system emitted about 1.8 billion tons last year, according to data compiled by Bloomberg.
The draft compromise would make the passage of the measure in the whole assembly “very likely” if the three parties officially back the deal, according to Itamar Orlandi, an analyst at Bloomberg New Energy Finance in London. The proposal would then become subject to negotiations with the EU Council of Ministers in a process known as trilogue, which also involves the commission.
“The relatively far-ranging concessions widen the scope of the trilogue negotiations with the council and the commission, which may oppose some of the elements of the deal,” Orlandi said by e-mail. “That could complicate the negotiations and delay the adoption” of the draft legislative change to enable temporary curbs of oversupply.
Permits delayed at auctions will need to be reintroduced to the market “in a linear manner, immediately after the last allowances are taken out,” Seeber said. The draft compromise also urges extension of a list of companies prone to relocating production to regions without emission curbs until 2020 and creation of a fund to help innovative industry projects, he said.
Of the 900 million permits that the commission seeks to delay, 600 million will be earmarked for the fund, according to the deal reached today.
“We don’t want the ETS to be a simple cash cow for national governments,” Seeber said. “We want to make sure the money is used for technological innovation in CO2 reduction and energy efficiency.”
The EPP is to decide on whether to back the compromise on June 18.
“I’ll go to the EPP to look for support for this position,” Seeber said. “I’ll propose that my group accept that.”
Eija-Riitta Korhola, a Finnish member of the EU Parliament who oversees the backloading proposal in the EPP, said the group’s position was open as long as she hasn’t seen the draft compromise, according to a posting on her Twitter Inc. account today.
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