Bloomberg News

EU CO2 Fix May Avoid Delays as Lawmaker Seeks Faster Vote

November 30, 2012

The European Union’s proposal to strengthen the carbon market may avoid delays after a lawmaker overseeing the draft measure said he will seek to bring forward by a month a vote on it in the region’s parliament.

EU emission permits for delivery in December slumped to a record low of 5.89 euros a metric ton today after the European Commission said yesterday it won’t call this year a vote by governments on its plan to sell fewer allowances starting in 2013, fueling speculation that the stopgap measure aimed at helping prices recover will be delayed. The commission, the bloc’s regulator, wants to wait for a decision by the Parliament on a related change to the emissions law, according to an EU official, who declined to be identified citing policy.

“I want to accelerate the plenary vote, possibly to March,” Matthias Groote, a German member of the parliament and chairman of the assembly’s environment committee, said in a telephone interview. “It will depend on how many amendments my colleagues table. I want to keep the number small.”

At stake is the price of emission permits in the world’s biggest cap-and-trade system after they plunged 77 percent since the beginning of 2008 as the economic crisis hurt industrial output. The downturn boosted the surplus of allowances to almost half of the average annual pollution limit in the 27-nation EU.

Legal Uncertainty

The EU plan to curtail the oversupply consists of two elements: an amendment to the EU law to clarify the commission’s right to decide on timing of auctions and a measure to “backload” 900 million permits from 2013-2015 to 2019-2020. By tackling the glut of allowances the price signal in the Emissions Trading System will become strong enough to encourage investment in green technologies, said Isaac Valero-Ladron, climate spokesman for the regulator.

“We have confidence in the ETS as the backbone of the climate policy,” he told a briefing in Brussels today.

While the proposed law change, aimed at removing legal uncertainty over the delay of sales, requires votes by EU ministers and the parliament, the backloading measure is considered in a parallel but separate procedure. It requires backing from representatives of member states in the EU Climate Change Committee and then becomes subject to scrutiny by national governments and the parliament.

“Everything is according with the timetable,” Groote said in the interview. “There are no delays.”

Final Version

The Climate Change Committee, which decides by qualified majority, will hold a formal vote on the delay of carbon auctions as soon as an agreement has been reached by member states and the parliament on the emissions law change, the commission said yesterday. At its December meeting member states will be invited to present their opinions on the draft measure, it said.

Member states could vote on backloading as soon as February, after a decision by the parliament’s environment committee set for Feb. 19, according to Sanjeev Kumar, a senior associate at E3G environmental lobby group in Brussels.

The plenary vote, which would take place after the parliament and governments reach an agreement on the final version of the proposed legislation, could be brought forward to March under Groote’s plan, one month earlier than the currently scheduled mid-April tentative date.

“This is a positive realignment,” Kumar said by telephone. “Backloading is back on track.”

Potential Deadlock

Calling a formal vote next year will also give some countries including Germany more time to determine their positions on the proposal. The country’s Environment Ministry and Economy Ministry are at odds over the plan, and Economy Minister Philipp Roesler said earlier this month that the nation may abstain in any voting, making it easier for opponents of backloading to create a blocking majority that would lead to a deadlock.

The ETS, which imposes emission caps on about 12,000 facilities owned by manufacturers and power plants, doesn’t allow any price floors or ceilings. The pollution limits were set before the debt crisis and economic slump.

Emitters in Europe remain divided over the need for curbing oversupply in the system. While companies including EON SE and Alstom SA (ALO) have urged fast implementation of backloading, some energy-intensive companies have objected any intervention. Europia, a refining industry lobby whose members include Exxon Mobil Corp. (XOM:US), doesn’t support backloading, the group’s Secretary General Chris Beddoes said in an interview on Nov. 26.

Ballot System

“We understand the ETS is struggling, but the ETS objectives were to achieve a carbon reduction,” he said. “There was a kind of an unwritten thought that it may promote technology, but it’s supposed to be a market based mechanism.”

Should the measure to delay auctions win qualified-majority support from EU nations, whose weighted ballot system favors larger countries, it will be sent for a three-month scrutiny to the parliament and governments. Then it will be formally adopted by the commission and enter into force after publication in the EU Official Journal.

The International Emissions Trading Association, which has been supporting “a speedy process” for backloading, said it is concerned that the EU statement yesterday stops short of providing the necessary clarity for market participants.

Voting Trigger

“It is unclear still what the trigger will be for the vote in the Climate Change Committee to take place, and whether this could take place after the vote in the parliament’s environment committee, or after a political agreement between the co- legislators during trilogues, or after the formal adoption of the amendment to the ETS directive,” IETA’s EU Policy Director Sarah Deblock said by e-mail today.

The start of backloading will depend on what the commission qualifies as an agreement between member states and the parliament, according to Konrad Hanschmidt, a London-based analyst at Bloomberg New Energy Finance.

“If the vote in the parliament marks an agreement, then bringing it forward to March would allow backloading to start around September,” he said by e-mail. “If both the parliament and ministers have to vote, we would still be probably talking about backloading starting in 2014.”

To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net


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