German State Election Fails to Provide Clarity on EU Carbon Fix

Yesterday’s elections in the German state of Lower Saxony failed to provide clarity on whether the country will back the European Union plan to strengthen the bloc’s carbon market, Bloomberg New Energy Finance said.

The Free Democrats of Economy Minister Philipp Roesler, an opponent of the proposed EU carbon fix, got a boost in the vote yesterday, winning almost twice as much backing as polls had suggested. That was not enough to allow FDP and Chancellor Angela Merkel’s Christian Democrats to remain in power in Lower Saxony. The ruling coalition lost control of the state as the Social Democrats and Greens took a single-seat majority.

At stake is the price of carbon permits in the EU emissions trading system, which analysts including UBS AG said may extend record lows unless governments support a plan to reduce a glut of permits. Germany hasn’t decided yet on whether to back the EU proposal, known as backloading, which pits Roesler against Environment Minister Peter Altmaier.

“The results do not make Germany’s position on backloading any clearer than it was ahead of the poll,” Itamar Orlandi, a London-based analyst at New Energy Finance, said by e-mail today.

EU emission permits for delivery in December fell to a record low of 4.79 euros ($6.38) a metric ton on the ICE Futures Europe exchange in London today. The contract extended its loss to about 85 percent since its record high in June 2008, amid a record oversupply of allowances triggered by an economic crisis.

EU Plan

Altmaier has repeatedly voiced support for the EU plan to reduce the glut by delaying auctions of 900 million permits starting this year. Germany may abstain in any vote on the backloading proposal should the environment minister insist on his position, Roesler’s ministry said in November.

“The FDP’s higher-than-expected support means that Roesler’s anti-backloading view cannot be ignored,” Orlandi said. “At the same time, the victory of the red-green bloc will remind Angela Merkel that many Germans are still willing to bear the costs of an ambitious environmental policy and might punish decisions that undermine the existing policy.”

Germany is one of four nations that have the highest number of votes in the EU ballot system: 29 out of 345. The three other countries are Italy and France, which signaled support for delaying carbon-permits sales, and the U.K., which said last month it didn’t have a final position yet.

The backloading proposal requires 255 votes to be implemented. Poland, which has 27 votes and leads the opponents of the carbon market fix, would need to muster 91 votes to block the plan designed by the European Commission.

The commission, the EU’s regulatory arm, today called on member states and the European Parliament to act “swiftly and with determination” to strengthen the carbon market.

“Abstention would amount to a negative vote,” Isaac Valero-Ladron, climate spokesman for the commission, said by phone today. “We’re urging Germany and the U.K. to support the proposal.”

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