Parliament to vote again on backloading

A revised version of the European Commission’s proposal to ‘backload’ carbon allowances in the European Union’s Emissions Trading Scheme (ETS) will be sent back to the full Parliament.

Members of the European Parliament’s environment committee voted today (19 June) to send a revised version of the European Commission’s proposal to ‘backload’ carbon allowances in the European Union’s Emissions Trading Scheme (ETS) back to the full Parliament. But its prospects in the 3 July vote in Strasbourg remain highly uncertain.

The committee agreed to compromise amendments to the Commission’s proposal which are designed to make concessions to heavy industry and sway enough wavering centre-right MEPs to back the proposal. The proposal was rejected in April over centre-right over a belief that the Commission should not be allowed to interfere in a market mechanism and fears that raising the carbon price would increase energy prices for industries experiencing economic difficulties.

Analysts warn that the price of carbon in the scheme, which has fallen to all-time lows under €4, will doom the system to irrelevance if not corrected urgently. The price was intended to be around €30 at this time, but over-allocation of free allowances combined with a slowdown of industrial activity has driven the price down.

The alterations agreed yesterday in committee would allow the Commission to withdraw the allowances in 2014, but they would have to be reintroduced the following year rather than in 2018 and 2019 as proposed by the Commission.

Revenues from 600 of the 900 million allowances temporarily removed should be earmarked for aid to Europe’s energy-intensive industries. Lastly, the allowances could only be backloaded if the Commission has determined that doing so will not cause ‘carbon leakage’ – the phenomenon of industries moving out of Europe to avoid climate legislation.

Whether the amended legislation can pass the full Parliament on 3 July is still unclear. Austrian centre-right MEP Richard Seeber, who helped craft the compromise, says he can convince enough EPP lawmakers to switch sides. But centre-right Finnish MEP Eija-Riitta Korhola, who is leading the rejection camp, says there is a large group that will not budge. British conservative MEPs will also maintain their opposition, defying their party leader David Cameron, UK prime minister, who supports backloading.

The European Council has yet to agree a stance, because Germany has not taken a position. Philipp Rösler, Germany’s economy minister, is against, while Peter Altmaier, the environment minister, is in favour, but has said that a positive vote from the Parliament is needed before Germany can support backloading. A rejection by the environment committee  yesterday would have killed the proposal for good.

Carbon market analyst PointCarbon warned yesterday that even if the amended version does pass, the proposal will still need approval by member states and by the time it is passed it would likely be too late to make a significant difference to the price.

“There are likely to be delays after this stage,” according to carbon market analyst Haege Fjellheim. “Realistically we expect that the trilogue will last until the end of the year, and it is unlikely that the backloading, i.e. the actual reduction in auction volume, will be implemented before mid-2014.”

“Moreover, some of the amendments introduced in the ENVI vote, especially the proposal to redistribute auctioning revenue from member states to a fund to support the low-carbon transition in energy-intensive industries, will probably make the negotiations between the Parliament and Council more difficult,” he added.

Point Carbon estimates that if the version adopted today by ENVI eventually became law, the price of carbon would only rise to an average of €6.3 per tonne over the next seven years.

Even if the concessions to heavy industry won over some centre-right MEPs, they did not win over heavy industry itself. Gordon Moffat, director general of the European Steel Association, said that although the amendments represent an improvement, “the proposal represents market interference as well as additional, artificial increases in energy prices.”

None of the industry associations which have been lobbying against the proposal, which also include chemical industry association CEFIC and business association BusinessEurope, were persuaded by the concessions to change their stance.

Many environmental campaigners said the concessions have made the backloading futile. “There has been so much backtracking on this plan for a temporary fix of the EU carbon market that it is now only a shadow of what it should have been,” said Greenpeace EU climate policy director Joris den Blanken. “The best it will do is give some very short-term relief and act as a fundraiser for polluting industries with no obligation for deeper carbon cuts. Instead of polluters, it is taxpayers that will be picking up the carbon bill.”

“MEPs are trying to have their cake and eat it too,” said Julia Michalak of CAN Europe. “The backloading compromise adopted today is nothing like the proposal made by the Commission last summer. Backloading is now as full of holes as Swiss cheese.”

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