EU Carbon Market Fix Bolstered by Accord Before Committee Vote

An early start of a mechanism to help boost European carbon prices is more likely to win support from lawmakers in Brussels on Tuesday after the two largest parliamentary groups agreed on the measure.

The European Parliament’s environment committee is scheduled to vote after 3 p.m. in Brussels on a draft law to implement the carbon-market stability reserve, which would curb a glut of permits in the EU emissions trading system. Christian Democrats and Socialists said Monday they would support a set of amendments presented by lead lawmaker Ivo Belet to bring forward the reserve to 2018, three years earlier than proposed by the European Commission.

“We’ll support the compromise package,” Belet, a Belgian member of the Christian Democrats, the biggest group in the EU Parliament, said by phone on Monday.

The 28-nation EU is seeking to strengthen its cap-and-trade emissions program after the price of permits plunged about 70 percent since 2008 to levels that fail to deter industry from burning coal, the most-polluting fossil fuel. Benchmark carbon allowances closed 5.2 percent up at 7.76 euros ($8.80) a metric ton on ICE Futures Europe in London on Monday, the highest level for the front-year contract since Nov. 14, 2012.

“We will back the compromise in the vote,” said Matthias Groote, a German member of the EU Parliament, who oversees the draft carbon fix on behalf of the Socialist group.

The Christian Democrats and Socialists together hold 38 of the 69 votes in the committee. While EU Parliament members aren’t obliged to vote in line with party positions, they risk party sanctions if they don’t.

Market Fix

The deal designed by Belet would replace some of more than 200 amendments proposed in the committee. It would bolster the market fix by transferring to a reserve 900 million permits delayed, or backloaded, at government auctions in 2014-2016. Remaining allowances in a special reserve for new entrants at the end of the current trading period through 2020 and those not allocated to emitters due to closures or under exemptions would also be moved to the stability reserve.

The compromise represents a “win” for proponents of a strong market stability reserve, said James Cooper, an analyst at Bloomberg New Energy Finance in London.

“The measures to deal with unallocated and backloaded allowances will prevent a supply flood in 2020, while a 2018 start will bolster the bullish price impact of backloading,” he said by e-mail on Monday.

Unallocated Allowances

To allay concerns of energy-intensive industries over rising carbon prices, Belet proposed making 300 million unallocated allowances available from 2018 to 2025 for an innovation fund. The compromise also includes a call on the commission to review provisions on carbon leakage, the relocation by businesses of production to regions without emission curbs.

The deal “looks very good,” Gerben Jan Gerbrandy, a lawmaker who represents the Liberals, the fourth-largest group in the EU Parliament, said in an interview on Monday.

The opinion of the environment committee, which may need an additional vote by the plenary, will become the Parliament’s negotiating position in talks with national governments on the final version of the market fix law.

Member states will probably adopt their position next month, according to Latvia, which holds the rotating presidency of the EU. While national governments are open to putting backloaded carbon permits in the reserve, several member states seek to block implementation of automatic supply controls before 2021, EU officials with knowledge of the matter said last month.

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