EU Parliament’s Biggest Group Withdraws Early Carbon-Fix Offer

The European Parliament’s largest political group withdrew a draft compromise on advancing a remedy for Europe’s carbon market to 2019 after its proposal failed to win broad support Monday in the legislature’s industry committee.

The European People’s Party opted Tuesday to form a coalition with the European Conservatives and Reformists group that will push to introduce the so-called carbon-market stability reserve in 2021, in line with the European Commission’s original proposal last year. A coalition of four other groups in the committee wants to bring the emissions fix forward by four years in a vote on Jan. 22.

The reserve mechanism would help curb a record glut of carbon permits in the European Union emissions trading system and help prices recover after they plunged almost 70 percent since 2008. Germany and the U.K. want to start the reserve in 2017, while Poland, which relies on coal to generate most of its electricity, opposes an accelerated overhaul.

“There is no point hiding that we are divided just like Europe is divided,” Marek Grobarczyk, the ECR group’s lead lawmaker on the measure in the industry committee, said in an interview. “Old EU countries that don’t rely on coal back an early start, and nations mainly in central-eastern Europe opt for a later introduction to protect their economies.”

Fixed Limit

The reserve would automatically adjust the number of permits in circulation, withholding them if the surplus exceeds a fixed limit and returning them in the event of a shortage. National governments and the parliament can modify the draft plan for the reserve.

EU carbon permits for December settled down 0.7 percent at 7.25 euros ($8.38) a metric ton on ICE Futures Europe in London. That eroded yesterday’s 1.1 percent climb.

“Some traders appeared to bet the industry committee would be able to agree on a 2019 start for the market stability reserve, which didn’t happen,” said Louis Redshaw, founder of Redshaw Advisors Ltd. in London, which trades on behalf of factories.

The ECR signaled last week it would reject starting the carbon reserve in 2019 under a proposal drafted by the EPP unless all other groups approved the compromise. The four groups backing 2017 declined yesterday to soften their position. The lack of ECR support left the EPP unable to put the 2019 date to a vote this week because such an amendment would need sponsorship by at least two political groups.

Backloading Policy

The industry committee’s Socialists and Democrats, Liberal, Green and European United Left/Nordic Green Left lawmakers agreed to push for an accelerated overhaul and the direct placing in the reserve of 900 million allowances withheld at government auctions in the 2014-16 period under a policy known as backloading.

The coalition’s position reflects the stances of the German, U.K. and French governments. They want a swifter start for the reserve to help boost carbon prices to levels that would spur investment in clean-energy technologies and switch from coal to less polluting fuels, such as natural gas.

“We are hoping that there will be a majority in favor of 2017, rather than 2021,” Fredrick Federley, the lead industry committee lawmaker on the measure from the Liberal group, said in an interview.

Start Date

The EPP and ECR want to set aside 300 million withheld emission permits in a special fund for innovative technologies and transfer 600 million directly into the reserve in 2020. Grobarczyk advised against advancing the start date for automatic supply controls, saying they would undermine the market nature of the EU cap-and-trade system in the current trading period through 2020.

“I hope we will be able to push 2021 through in the industry committee, but I can’t say what the outcome will be in the plenary vote at a later stage,” he said. “We can’t exclude anything, not even 2017.”

After the industry panel votes, the measure will move to a ballot in the parliament’s environment committee on Feb. 24. The report the panel will adopt may be the assembly’s starting position in negotiations with national governments. The outcome of those talks, known as trilogue, will need plenary approval and backing from ministers of national governments for the measure to take effect.

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