MEPs voted in Strasbourg today (16 April) to reject a proposal from the European Commission to delay auctioning of carbon allowances in the European Union's emissions trading scheme (ETS).
The carbon market fell by the highest rate ever following the vote, with the price of carbon plummeting by as much as 45% to a record low of €2.63. The proposal would have delayed the auctioning of some allowances in order to increase the deflated price of carbon, which was meant to be around €30 at this point. But heavy industry warned that this type of intervention in a market mechanism would erode confidence in the system.
The vote, with 334 MEPs against the proposal and 315 for it, is itself being seen as a crisis of confidence in the system. Stig Schjølset, head of EU carbon analysis for PointCarbon, said the proposal is now “effectively dead”.
“This means there will be no changes to the current system until 2020,” he said. “Prices will stay really low up to then. The EU ETS will not bring about any additional greenhouse gas reductions, so it will be irrelevant in terms of reducing total emissions in Europe.”
"The EU's carbon market is at crisis point,” said Green MEP Bas Eickhout after the vote. He called the combination of centre-right MEPs, German Liberals and some hard left MEPs from the GUE group who voted to reject the proposal an “irresponsible and unholy alliance of MEPs.”
The proposal, put forward by the European Commission in July, would have raised the flagging price of carbon by delaying auctioning of emissions allowances intended to be allocated in 2013-2015 until 2018-2020. The so-called ‘backloading proposal' was intended to be a quick short-term fix to the price slump while more long-term solutions are developed, but it encountered unexpected resistance.
Environmental groups and energy companies reacted with alarm to the vote. “After this vote, the stability of the emissions trading scheme (ETS) is in serious doubt,” said Joris den Blanken of Greenpeace.
Hans ten Berge, secretary general of electricity industry association Eurelectric, said the vote, “is a dangerous set-back for the internal energy market and for EU carbon goals.”
“Immediate carbon market reactions to the vote show how low the credibility of the ETS has fallen," he added. "Only urgent action by the Commission to put forward structural proposals on ETS can now stop Member States from each legislating their own alternative policies: 27 different carbon floor prices, coal taxes, carbon taxes.”
Ireland's environment minister Phil Hogan also reacted with alarm to the vote result. “The ETS is Europe's flagship response to greenhouse gas mitigation, and the extent to which its effectiveness is now undermined by the economic downturn is a regrettable setback to Europe's progressive transition to a competitive, low-carbon econom," he said. He urged the Commission not to withdraw the proposal in reaction to the Parliament's vote.
Connie Hedegaard, European commissioner for climate, said after the vote, “we will now reflect on the next steps to ensure that Europe has strong EU ETS. In doing so the Council's position on the proposal will be an important factor and I take note of the Irish Presidency's reaction today to urgently pursue and conclude discussions among Member States. The market, the investors and our international partners are all awaiting.''
But Schjølset said even if the backloading proposal could still be saved, it could not be ready before 2015, well after the backloading was meant to take place.
Some environmental groups, such as Friends of the Earth, oppose the ETS and want to see it dismantled in favour of more direct emissions reduction policies. Following today's vote, some environmental groups that have stood by the ETS signalled they may now switch tactics.
Julia Michalak of green NGO Climate Action Network said, “Since Parliament has made it clear that they don't support backloading, we now urge all branches of EU government to propose alternative solutions to support Europe's transformation into a low-carbon economy.”
Business association BusinessEurope, which joined heavy industry in opposing backloading, welcomed the rejection. "It is time to move past the divisive and unhelpful debate around backloading and focus on the real priorities for the EU: how to secure a cost-competitive, secure and climate-friendly energy policy for 2030," said Markus J. Beyrer, BusinessEurope director general. "The increasing energy cost gap with the US is a major challenge for European business which must be tackled."