March 5 (Bloomberg) -- The European Union plan to automatically adjust supply of carbon permits will start to be discussed by the region’s Parliament in September, according to the assembly’s environment committee chair Matthias Groote.
The 28-nation bloc’s Parliament will begin work on the draft law, which aims to introduce supply curbs or injections to avoid imbalances, only after elections in May and a summer recess in August, Groote said today in an interview in Brussels. The measure needs qualified-majority support from member states and majority backing from the Parliament to enter into force.
“It is not possible to start work on the stability reserve mechanism before September due to technical reasons,” Groote said. “First we will have the elections and then a new head of the environment committee will be chosen on July 7 before the Parliament goes into recess.”
The plan to introduce automatic supply controls in the EU emissions-trading system, the world’s largest, was proposed by the European Commission in January as a part of a strategy on climate and energy policies for 2030. The draft law aims to strengthen the market in the next trading period that starts in 2021 after prices fell to record lows last year amid oversupply.
The supply of permits will be reduced if there’s an accumulated surplus of at least 833 million metric tons, according to the draft law. If the surplus falls below 400 million, the EU would begin returning allowances from the reserve to the market. The cap-and-trade program had an excess of about 2.2 billion allowances at the end of last year, according to commission estimates.
The ETS, started in 2005, imposes decreasing pollution caps on about 12,000 installations owned by power producers and manufacturers including EON SE and ThyssenKrupp AG. Each year they must surrender enough permits, which they get for free or have to buy at auctions, to account for their discharges or pay fines amounting to 100 euros a ton.
EU allowances for December traded at 6.92 euros today on the ICE Futures Europe exchange in London. They rebounded from a record low of 2.46 euros in April after the EU adopted last month an emergency market fix known as backloading, which will withhold 900 million allowances at auctions between 2014 and 2016 and return them to the market in 2019-2020.
The stability reserve mechanism is meant to be a permanent solution to avoid imbalances in the ETS, according to the commission. The Parliament will first discuss the proposal in its environment committee and then will need to hold a plenary vote on it in a process that typically takes at least a year.
After the committee vote and before the plenary verdict, the lead lawmaker on the measure and the EU presidency, representing member states, may hold informal talks to reconcile their positions. Such talks are known as trilogue.
Member states have already started an exchange of views on the proposal and plan to begin discussions on the text in April, according to Kyriakos Psychas, a Brussels-based environment attache for Greece, which holds the rotating presidency of the EU until the end of June. Environment ministers were split about the draft in their first debate about the future climate and energy framework during a meeting in Brussels on Monday.
German Environment Minister Barbara Hendricks said that a sustained strengthening of the ETS is needed earlier than in 2021 and Denmark’s Climate Minister Rasmus Helveg Petersen said the proposal should be improved by earlier implementation, transfers of higher volumes of permits to the reserve and stricter rules for their return to the market.
Poland, the Czech Republic, Slovakia, Hungary, Romania and Bulgaria said in a joint statement that additional assessments and more clarifications are needed about the mechanism’s effects on national economies and on the EU economy. To be approved by member states, the draft law will need 260 out of 352 government votes in the EU weighted-ballot system, which favors bigger countries.
Ministers were also split on the 2030 climate goal, which will be subject to a separate law that the commission will propose after EU leaders reach a political agreement on the level of emissions cut the bloc should pursue. Heads of state and government will have a first discussion on the strategy at their March 20-21 summit and a decision is expected by the end of this year, an EU official, who can’t be identified because of the bloc’s policy, said on Feb. 28. That political decision will require unanimity, under EU rules.
Should EU leaders back the 40 percent carbon-cut goal for 2030 proposed by the commission, a draft law to implement it will include a provision to accelerate the pace of emissions reductions in the ETS. The so-called linear reduction factor would increase to 2.2 percent per year starting from 2021 compared with the 1.74 percent currently, the commission has said.
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