June 13 (Bloomberg) -- The Greens group in the European Parliament said it was against a tentative carbon compromise as the restrictions agreed on by representatives of three other political parties reduce the impact of the planned market fix.
Climate negotiators from the European People’s Party, the Alliance of Liberals and Democrats for Europe, and the Socialists and Democrats group struck a draft deal yesterday on the conditions of a carbon-market intervention sought by the European Commission. The proposal by the commission to temporarily curb oversupply in the world’s biggest emission-trading program and help prices rebound from record lows has divided member states, parliamentarians and industry.
“We won’t be signing the compromises nor voting in favor of them,” a spokesperson for the Greens group said by e-mail today. “The compromises yesterday weaken what was an already extremely weak measure for addressing the oversupply of permits.”
EU carbon permits for delivery in December fell as much as 2.2 percent after the Greens’ comments. They were down 1.1 percent at 4.45 euros a metric ton as of 1:41 p.m. on the ICE Futures Europe exchange in London. The contract reached a record low of 2.46 euros in April.
While the commission seeks reaffirmation of its right to delay auctions of some carbon permits, the draft compromise would allow it to intervene on the market only if a study shows such a move has “no significant impact” on industries prone to relocating production to regions without emission limits. The EPP is concerned that a potential increase in carbon prices because of auction delays would undermine the competitiveness of EU industry.
The cost of discharging greenhouse gases in the EU cap-and-trade system slumped almost 90 percent in the past four years as an economic slowdown curbed industrial output and demand for pollution rights. That helped the glut of allowances swell to almost 2 billion metric tons last year, almost equal to annual emission caps in the EU program, according to estimates by the Brussels-based commission.
The draft deal struck yesterday requires earlier return of the delayed allowances to the market and earmarking of some of the postponed permits for a fund to help innovative technologies, according to a document obtained by Bloomberg News. The restrictions go beyond a Greens-led proposal put forward last month, which sought limiting the so-called backloading to a one-time move “in exceptional circumstances.”
“Once everyone grasps the entire weakening of the proposal, markets will see this will do nothing,” Bas Eickhout, a Dutch member of the Greens, said on his Twitter account today.
Climate negotiators from EPP, S&D and ALDE now need to secure their groups’ approval for the draft compromise before a vote in the environment committee on June 19 in Brussels and in the EU Parliament’s plenary on July 2 in Strasbourg, France. The three parties have a majority in the assembly.
The upcoming votes will mark a second approach by the Parliament to decide on the future of the emergency plan for the EU carbon market. The whole assembly on April 16 voted 334 to 315, with 63 abstentions, to reject the commission proposal and then decided to send it to the environment panel for further talks. The EPP, the biggest group in the Parliament, voted 177 to 59, with 21 abstentions, against the market fix.
Austrian lawmaker Richard Seeber of EPP, who took part in the meeting of climate negotiators, said yesterday the compromise addressed some of the group’s concerns and he would recommend his colleagues back it. Eija-Riitta Korhola, a Finnish member of the EPP who oversees the carbon fix proposal in the group, said that she was “highly skeptical” about the deal.
“After listening to my colleagues I’ve decided not to recommend for the EPP the ETS compromise as our first priority,” Korhola said on Twitter, adding it may be a good fall-back amendment that the group could support if the attempt to reject backloading fails. The EPP is due to make a final decision on the compromise on June 18.
The draft deal requires the commission to reintroduce the withdrawn permits “in a predictable and linear manner starting from the year following that during which allowances have last been withheld,” according to the draft obtained by Bloomberg News. The commission planned to set out the details of backloading in a separate regulation, to be agreed after the change to the emissions-trading law. It proposed delaying 900 million allowances in 2013-2015 and returning them to the market in 2019-2020.
The compromise yesterday also urges earmarking 600 million allowances for a fund for the development of innovative carbon technologies and “demonstration projects and developments that may reduce the costs and carbon emissions of energy-intensive industries.”
The compromise consists of two amendments: one to the binding part of the law the commission wants to modify and another to the recital, or a non-binding part that contains reasons for the legislative act. The latter repeats a call on the commission to create the innovation fund and a provision to cap the number of allowances to be delayed at 900 million in a one-time intervention. It also urges extension of measures against carbon leakage.
A vote in favor of the proposed market fix in the Parliament on July 2 will authorize Matthias Groote, the German Socialist lawmaker in charge of the measure in the assembly, to start talks with representatives of national governments on the final wording of the legislation. The outcome of the talks will need official approval by the Parliament and EU ministers.
In the second stage of the regulatory process, member states will decide on the details of backloading in a separate regulation, which will set the volume of allowances to be postponed and timeline of auction delays.
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