European Parliament Approves Measures to Prop up EU Emission Allowances Price

In a final vote, the European Parliament (EP) approved the plan to freeze the auctioning of EU Emission Allowances in an attempt to prop up ailing CO2 permit prices thereby encouraging low carbon investment. In July Parliament had amended the plan, setting stricter conditions.

According to the motion, which was adopted by 385 votes to 284 with 24 abstentions, the European Commission may, in exceptional circumstances, adapt the timing of auctions, provided an impact assessment shows that the sectors concerned will not face a significant risk of companies relocating outside the EU (so-called backloading). The Commission will only be able to make one such adjustment, up until 2020, covering a maximum of 900 million allowances.

Parliament’s amendment was already agreed with the Member States. Hence approval by the Council of Ministers  which is to vote on the legislation at its meeting on 16 and 17 December can be expected. The measures to correct the carbon market can then be implemented by the Commission under powers delegated to it.

The EU Emissions Trading System (ETS) introduced in 2005 sets an overall emissions ceiling which is gradually being reduced over the long term. By 2020, emissions from industrial sectors covered by the ETS shall be 21% lower than in 2005. The system has, however, suffered from falling prices for emission allowances. Initial expectations that prices would range between EUR 20 to 30 for the right to emit one tonne of carbon dioxide (CO2) per permit have been disappointed as prices have fallen due to an initial oversupply and the economic downturn, reaching a level of EUR 4 to 5.

As the vote shows opinions are split over the plan to temporarily remove a share of permits from the market. In Germany the outgoing coalition government was also divided on the issue, with Conservative Environment Minister Mr Altmaier supporting the plan for environmental reasons while his Liberal cabinet colleague Economics Minister Philip Rösler opposed it for fear of rising carbon prices for the industry. There is also concern that the backloading measure will not be far-reaching enough to stabilise the EU ETS. Following the federal election of 22 September 2013 the conservative CDU/CSU and the Social Democrats (SPD) drafted a coalition agreement, which SPD members are currently voting on. Regarding the EU ETS, the potential coalition partners said they wanted to work towards improving the system, but said the planned backloading of 900 million emission allowances had to remain a one time event.

Source: European Parliament

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