A panel of European Union lawmakers approved a watered-down rescue plan for the world’s biggest carbon market, after a record surplus of emission permits pushed prices to an all-time low.
Carbon allowances for December fell after the European Parliament’s environment committee voted for a change to EU law that would allow delaying the sale of some carbon permits in an effort to support prices. It was the committee’s second opinion on the emergency measure, known as backloading, after the proposal was rejected by the full assembly in April.
The panel recommended the whole Parliament support the restricted version of the measure after the original plan to intervene in the EU’s $72 billion cap-and-trade program divided policy makers and industry. Opponents of the fix, ranging from Poland to steelmaker ArcelorMittal, say it pushes up energy costs, while advocates such as Royal Dutch Shell Plc say it’s needed to boost investment in pollution-cutting technology.
“The support for the compromise in the environment committee suggests that the odds for passage of backloading in the plenary are better than they were ahead of the last vote in April,” said Itamar Orlandi, an analyst at Bloomberg New Energy Finance in London. “The market will now increasingly look for indications whether member states will also be willing to support the compromise.”
Carbon slumped to an unprecedented 2.46 euros a metric ton on April 17 after the Parliament rejected the European Commission’s rescue proposal. The price was 7.93 euros in April 2012 when EU Climate Commissioner Connie Hedegaard first floated the idea of fixing the surplus. The contracts dropped 7.2 percent today to close at 4.36 euros on the ICE Futures Europe exchange in London.
The euro area’s second recession since 2008 has cut demand for emissions permits, worsening a glut that swelled to almost 2 billion tons in 2012, almost equal to the EU’s annual limit. Europe’s trading system imposes emissions caps on about 12,000 power plants and factories, which must surrender allowances to cover their discharges of carbon dioxide or pay fines. The pollution limits were set before the economic slowdown.
While backloading was intended as a quick fix toward a deeper overhaul of the EU carbon market, debate over the measure has turned into a “never-ending story” and a vote on European competitiveness, said Ingo Ramming, co-head of commodity solutions at Commerzbank AG in London.
The environment committee’s decision “should support the market,” he said by e-mail. “Backloading alone will provide, in the mid-term, only limited upside taking into account the current supply and demand balance.”
The compromise approved today was struck on June 12 by negotiators from the European People’s Party, the Alliance of Liberals and Democrats for Europe, and the Socialists and Democrats group after almost two months of talks. The three account for 544 of the 754 votes in plenary meetings. Members of the assembly aren’t bound by party lines.
Under the compromise, the postponed permits would start to be returned, or backloaded, to the market one year after the allowances are set aside. The groups also agreed on a one-time intervention and to earmark 600 million permits for a fund to develop clean technologies. The commission, the EU’s regulatory arm, originally proposed delaying 900 million allowances in the three years through 2015 and returning them in 2019-2020.
The committee voted 44 to 23, with one abstention, against a measure to reject the rescue plan today. Members of the panel cast 38 votes in favor of the compromise deal, with 27 lawmakers objecting the deal and one abstaining.
“We had a positive outcome in the committee and I hope the market will react in a positive way,” Matthias Groote, chairman of the environment panel and the lawmaker in charge of the carbon fix in the Parliament, told reporters. “I hope we will also be able to reach a compromise in the plenary.”
Eija-Riitta Korhola, who is in charge of the measure in the EPP, the biggest group in the Parliament, said she remained against backloading even as most of her party members in the committee backed it. The EPP, which opposed the market fix in April, will decide its position for the plenary vote next week.
“Many of my colleagues are furious about what happened and they will vote against the measure in July,” she said. “I’m not sure if this group will be strong enough to block it.”
A vote in favor of backloading in the assembly on July 3 would authorize Groote 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.
While the plenary is likely to approve the compromise version, the restrictions the Parliament is seeking will make talks with the council of ministers more difficult, according to Bas Eickhout, a Dutch member of the Greens group in the EU Parliament.
“We’ll have complicated negotiations with the council,” he told a briefing in Brussels today. “They can start in September and take a while.”
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 amount of allowances to be postponed and the schedule of auction delays.
Europe’s steel industry called backloading “unnecessary intervention into a functioning market for carbon allowances,” according to a statement today from Eurofer, the lobby group that includes ArcelorMittal. The Hague-based Shell, as a member of the Prince of Wales’s Corporate Leaders Group on Climate Change, backs efforts to support the carbon market.
The temporary supply curbs are the first step toward a deeper overhaul of the cap-and-trade program, according to the commission. The regulator outlined options for a reform of the market in November and is planning to take further steps later this year, Jos Delbeke, director general for climate at the commission, said last month.