EU Rejects Carbon-Emissions Trading Plan Proposal
April 16, 2013
The European Union's flagship program to fight global warming suffered a major blow Tuesday when lawmakers rejected a proposal aimed at shoring up the Continent's carbon-emissions trading system, putting its survival in doubt.
After the European Parliament's surprise afternoon vote, spooked investors drove the price of emissions permits down by nearly half. Benchmark electricity prices also fell.
The legislature derailed--at least temporarily--a plan to push up permit prices by postponing for years the issuance of new permits. Electricity generators and others must buy the permits in order to emit carbon dioxide.
Europe's so-called Emissions Trading System, first launched in 2008, was designed to raise the cost of polluting and discourage the production of greenhouse gases to protect the environment.
But lately, politicians' focus on generating jobs and sparking growth on a Continent struggling to recover from recession is relegating green concerns to second place behind economics.
"It was a vote of reason," said Poland's environment minister, Marcin Korolec. Poland, one of the EU's less-affluent members, has been outspoken in its opposition to the measure, which it said could drag on development.
The Parliament's environment committee after the vote said that some lawmakers felt "that a rise in the carbon price would erode the competitiveness of European industry and be passed on in household energy bills."
German Economics Minister Philipp Roesler welcomed the rejection of the backloading plans as an "excellent signal" for an ongoing economic recovery. "Reducing supply CO2 allowances would equate to an intervention into a functioning market system," and further burden industry, he said.
The EU's executive arm, the European Commission, which devised the so-called back-loading plan, said it regretted the Parliament's move. And the EU's Council of Environment Ministers said it would try to draw up an alternate plan.
"Today's vote is a historic failure," said Joris den Blanken, the EU climate policy director at environmental advocacy group Greenpeace. Without action to deal with an oversupply of permits, the trading system won't "dissuade polluters and promote investments in cleaner production."
Slack demand for electricity and an abundance of permits in the market helped push the price of emitting a ton of carbon below 5 euros earlier this year, down from nearly 30 euros in 2008. After the vote, the price dropped to 2.55 euros before recovering partially to 3.2 euros.
Without the back-loading plan to increase scarcity on the carbon market, "the ETS will almost certainly collapse," said Kash Burchett, a London-based analyst at consulting company IHS Energy.
"Prices will likely sink below EUR1 per ton as participants recognize that there is no political will at present to restore the market mechanism to functioning order," he said.
That, in turn, would severely undercut the credibility of Europe's carbon market as a key element of the bloc's goal to reduce emissions 20% from 1990 levels by 2020.
Rob Elsworth, Brussels based campaigner for Sandbag, a U.K. non-profit organization campaigning for effective carbon markets, said the vote sent the wrong message to companies, the public and the international community.
"It's now incumbent on those MEPs who said they support the long term success of the EU ETS to act to prevent the EU's climate policy from drifting dangerously off course."
The back-loading proposal put forth by the Commission called for delaying the auction of 900 million permits by five to seven years. Analysts said it could take time for the Commission to come up with a new plan.
Late in the day Tuesday, contracts for 2014 German base-load power fell, to 39.55 euros per megawatt hour from 41 euros per megawatt before the vote.
Investors, watching falling electricity prices and worried that utilities will have to write down the value of permits they now hold, drove down power company shares.
Shares in German utilities E.ON and RWE lost 4.6% and 2.4%, respectively, while shares in central and Eastern Europe's largest company by market capitalization, Czech utility CEZ, were down 3.4%.
Source: Dow Jones Newswires
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