European Parliament Rejects Reduced Emissions Trading Proposal (4/17)     Print

By Dan Mahoney, European Affairs Editorial Assistant

In a narrow vote, 334-315, the European Parliament this week rejected a Commission proposal to reduce the amount of carbon permits granted by the EU under its Emissions Trading System (ETS). The Commission’s plan is called “backloading” because the withdrawn carbon allowances would be offered in future years.

Following the rejection vote, EU Climate Commissioner Connie Hedegaard noted that “the Commission remains convinced that backloading would help restore confidence in the EU ETS in the short-term until we decide on more long-term structural measure.”

The Emissions Trading System is a cap-and-trade process, in which companies purchase carbon emission allowances from the EU and then are able to trade these allowances on the open market. Companies that produce carbon discharge must purchase allowances, subject to an overall cap.

However, the price for carbon emissions allowances has declined in recent years, prompting fears that the EU was granting too many carbon allowances. The European economic downturn and falling industrial productivity has reduced demand for carbon allowances. In 2008, the price of carbon allowances reached its peak of approximately €30 per ton; before the vote,the price was about €5 per ton, although there was a sharp drop to €2.63 per ton right after the vote.

The Commission’s proposal would have postponed the auctioning of 900 million tons of carbon allowances from the market over the next two years.

ETS backloading was supported by the British, French, and Italian governments (but not necessarily their respective MEPs). The German government was divided on the issue, with Peter Altmaier, the German environment minister, signing a letter in support of backloading while Philipp Rösler, the economic minister, opposed the measure. The Polish government opposed backloading, as much of its energy supply comes from burning coal.

Supporters of reduced carbon allowances believed that the measure would encourage industry in Europe to search for environmentally friendly innovations to avoid paying for carbon allowances. Opponents of the Commission proposal claimed the reforms were an unnecessary market intervention by Brussels. Furthermore, decreased carbon allowances (and resulting rising costs) would, opponents said, make it more difficult for industry to bounce back from the prolonged economic downturn.

Gordon Moffat, director general of the European Steel Association, wrote in opposition to the Commission proposal in Euractiv: “The price of allowances is the result of supply and demand, as in every functioning market. It is lower than expected, at present, because of the economic crisis. It will go up again once European industry has returned to growth.”

German MEP Matthias Groote lamented the parliamentary rejection, stating that “the rejection of the backloading proposal weakens the EU emissions trading system and puts our climate goals at risk.”

While British Prime Minister David Cameron supported the measure, many MEPs in his party voted against backloading. A spokesperson for the British Conservative MEPs expressed concern “about the impact of Commission intervention to adapt the auction timetable in order to manipulate the carbon price.”

Environmentalists see the vote as a step-back. They argue that the Parliament’s rejection undermines the ETS as a whole, since carbon prices are forecast to continue to decline, and the move may prompt some member states to pursue their own carbon policies independent of the EU.