The emissions trading system of the European Union, also called EU ETS, has been dealt a bad hand in a recent vote to boost the price of carbon and to incentivize low-carbon growth in Europe. The Climate Commissioner Connie Hedegaard’s proposal for withholding carbon allowances from the market was narrowly voted against in a parliamentary session on April 16, 2013. Such “backloading” would have propped up the price of carbon in the near-term, a “short-term measure” to help the ailing emissions trading system which is Europe’s flagship climate policy. But the unexpected vote against the backloading plan has led to the price of carbon plummeting, adding to more uncertainty hanging over EU ETS, the world’s largest carbon market.
EU ETS, which was started in 2005 to address climate change and carbon emission in the EU’s 27-member bloc, capped the carbon emissions of more than 11,000 power plants. But the price of carbon has since fluctuated. The price of carbon, which was close to 30 euros per carbon in 2008, fell to less than 5 euros in January 2013. This was primarily due to the market being over-supplied with allowances due to the lower than expected industrial activity that followed the economic recession. The EU ETS, which recently entered its third phase in January 2013, continued its weak streak with prices of carbon hovering around 5 euros. With no measures in sight in the near-term to boost the price of carbon, the “backloading” proposal was seen as a significant step to reverse the slump in the short-term. But following the vote on April 16, the price further crashed to less than 2 euros.
Those who voted against the proposal claimed that such an artificial increase in price of carbon, given the present slump in the economy, would only further hurt those companies competing against American businesses who now benefit from low prices due to the advent of shale gas.
While this argument won the day for the powerful business lobby groups, carbon market analysts feared that this could spell the end of any resurgence in the market for the coming decade. “We believe that backloading is now politically dead and it is very unlikely that any political intervention in the scheme will be agreed during the third phase (2013-2020),” says Stig Schjølset, Head of EU Carbon Analysis at Thomson Reuters Point Carbon. “The focus will now shift towards structural, more long-term oriented measures but certainly this vote makes the EU ETS irrelevant as an emissions reduction tool for many years to come”. According to Joss Garman, political director of Greenpeace UK, the vote cast doubt on the future of the scheme. "The central plank of Europe's strategy for cutting carbon emissions is now rendered impotent as it won't stop a single dirty coal plant from being built," he said.
Some others were more hopeful of the issue getting a second chance, but also focused on the need for longer-term structural changes. “It’s outrageous that Parliament seems to value polluting industry more than Europe’s green future,” said Julia Michalak of CAN Europe. “Since Parliament has made it clear that they don't support backloading, we now urge all branches of EU government to propose alternative solutions to support Europe's transformation into a low-carbon economy.”
According to the Climate Commissioner for the EU, all is not over for the “backloading” proposal. In an official response to the vote, she said “The proposal will now go back to the Parliament's Environment Committee for further consideration. Europe needs a robust carbon market to meet our climate targets and spur innovation. The Commission remains convinced that back-loading would help restore confidence in the EU ETS in the short term until we decide on more structural measures.”