Carbon Permit “Backloading” Fight Continues in European Parliament

A European Commission plan to delay the auctioning of millions of carbon permits received a new boost last week, after a European Parliament committee signed off on the proposal. The legislation must still be approved by the full Parliament later this summer, which had rejected an earlier version. The move to delay permit auctions – a practice known as backloading – is aimed at boosting the prices of such permits, which underpin the EU’s Emissions Trading System (ETS). An oversupply of permits, combined with the bloc’s broader economic struggles, has led permit prices to hover at dangerously low levels, reaching less than €3 per tonne in April and generally about €5 per tonne. The plan approved by the Parliament’s environment committee last week includes various changes from the original proposal, which EU parliamentarians had rejected in April. (See Bridges Weekly, 18 April 2013 ) One of the most notable modifications involves language assuring that backloading will only be a one-off event, if done at all. The European Commission would also need to conduct an impact assessment showing there to be no “significant risk” of companies in the sectors concerned relocating outside the EU. In addition, carbon credits would need to be returned to the market “in a predictable and linear manner,” beginning from the year after the last permit has been withheld. The original legislation had called for reintroducing these permits in 2019-20. As in the original plan, only 900 million carbon permits would be withheld – out of 1.7 billion currently in the market. Six hundred million of these would need to be made available for funding the development of low-carbon technologies. “We now have broader support for a solution that will allow the ETS to fulfil its purpose and support innovation to tackle climate change,” said Matthias Groote, a German member of the S&D group who serves as the legislation’s rapporteur in Parliament. Plenary vote in July The proposal will next face a vote by the full Parliament during its 3 July plenary session in Strasbourg. However, even if EU lawmakers sign off on the revised measure, it will still need the approval of individual EU governments, under the bloc’s co-decision rules. The proposal has been controversial in the EU, over concerns that delaying permit auctions could increase energy costs and lower confidence in the overall ETS. Others have also argued that the EU emissions scheme has broader structural problems that backloading alone cannot solve. “As I have always said, backloading is a quick, temporary fix,” Groote said last week. “Structural reform of our Emissions Trading System will follow to ensure it remains the cornerstone of EU’s climate policy and an inspiration to others around the world.” Opposition to the plan is largely expected to come from Poland, a country heavily reliant on coal, and Germany, which has spoken out about the potential for rising energy costs. The United Kingdom, meanwhile, has been a strong backer of the plan, calling also for deeper reform of climate change policy. Compromises render the proposal “toothless,” critics say Observers say that the upcoming plenary vote is likely to have important ramifications for the credibility of Europe’s carbon market and the bloc’s overall efforts to meet its climate change goals. The EU has said that it aims to have almost carbon-free electricity by 2050, and has pledged to reduce emissions by 20 percent from 1990 levels by 2020. However, the “watered down” nature of the new backloading proposal has drawn criticism from some environmentalists, who say that the compromises made in order to win over previous opponents have rendered the plan “toothless.” The new version “is now only a shadow of what it should have been,” said Greenpeace EU climate policy director Joris den Blanken. Though some environmentalists find that the proposal does not go far enough to address the ETS’ problems, private sector critics have argued that the proposed backloading could drive up the cost of doing business in the EU and push economic opportunities elsewhere. BusinessEurope, a lobby group of industrial and employers’ federations, has opposed the initiative, calling it an “unnecessary political intervention into the ETS market.” The group added that European industry is on track for meeting its 2020 carbon reduction target. ICTSD reporting; “EU politicians to try again to rescue carbon market,” REUTERS, 19 June 2013; “EU Parliament Committee Approves Proposal to Fix Carbon Market,” WALL STREET JOURNAL, 19 June 2013. Taylor Scott International