Bloomberg News

EU Nations Quell Expectations of Fast Carbon-Fix Solution (3)

April 23, 2013

European Union governments damped market expectations of a quick revival of a stopgap fix for the world’s biggest carbon market after the bloc’s Parliament rejected the rescue.

EU environment and climate ministers signaled they had little scope to rejuvenate the plan to curb an oversupply of emission permits as long as the European Parliament wavers over the matter. The 27-nation assembly last week rejected the proposal and then sent it back to its environment committee for further debate of up to two months, reflecting concerns that higher energy prices would deepen the euro-area recession.

Governments want to give the Parliament “the necessary time to reflect upon the proposal,” Irish Environment Minister Phil Hogan told reporters today in Dublin during a meeting with his EU counterparts. Ireland, current holder of the bloc’s rotating presidency, scheduled the next meeting of national experts on the proposal for May, he said.

The refusal of EU nations to throw their weight behind the rescue plan, which has divided policy makers and the industry, raises the risk the proposal will fade. A week ago, permit prices fell the most ever to a record low after the Parliament’s rejection, which turned the spotlight onto this week’s meeting of ministers for signs of fresh political support.

Rescue Plan

The rescue plan, designed by the European Commission, the EU’s regulatory arm, aims to help bolster carbon prices by delaying auctions of 900 million permits from 2013-2015 to 2019- 2020 in a process known as backloading. That would reduce a glut of allowances aggravated by the economic slowdown, which has curbed industrial output and cut demand for emission rights.

To be enacted, backloading needs support from both the Parliament and governments in the Council of Ministers.

“Now the way forward is simply that the two institutions, the Parliament and the Council, both have to come up with their final say,” said EU Climate Commissioner Connie Hedegaard, who first floated the idea of backloading a year ago. “Politics does not always move forward as quickly as one would like to see, but it doesn’t mean that we will not get there in the end.”

EU emission allowances for delivery in December slumped 45 percent, the biggest drop ever, after the Parliament’s April 16 vote and extended their slide the next day, hitting an all-time low of 2.46 euros a metric ton. They rose 5.2 percent to 3.04 euros on the ICE Futures Europe exchange as of 2:58 p.m. in London today. The EU program doesn’t allow any price floors or ceilings.

Life Support

With the commission’s rescue plan itself needing life support, proponents including Denmark say the most they can do at the moment is to urge the EU Parliament not to pull the plug. Under EU rules, governments aren’t obliged to take a formal position on draft legislation until the Parliament does so.

“What is important now is that a certain amount of countries send a strong signal that, yes, we think that something should be done,” Danish Climate Minister Martin Lidegaard said in an interview yesterday in Dublin. “But it’s obviously also true that we’ll not be able to fix that signal on a specific proposal because that could be counterproductive, because they have to deal with that in the committee.”

The rescue plan for Europe’s 54 billion-euro ($70.3 billion) carbon market is meant to be a stopgap measure before the bloc agrees on deeper changes to ensure that the emissions- trading program stimulates investment in cleaner technologies. The commission in November outlined six potential scenarios, or so-called structural measures, to improve the system, which imposes pollution caps on about 12,000 emitters in the EU.

Trading Program

French Environment Minister Delphine Batho said a May 22 meeting of EU government leaders in Brussels may be the best occasion to try to revive the backloading proposal and affirm Europe’s commitment to the trading program for emissions of carbon dioxide, the main greenhouse gas.

“There’s an urgency to increase the price of CO2 in Europe,” Batho said in an interview today in Dublin. “There’s global competition today in green technologies.”

With the backloading measure in limbo, some ministers stressed the importance of more fundamental steps to bolster the emissions market.

“Backloading was only a temporary solution and now we have a chance to see if we can find a structural way to solve the problem in the emissions-trading system,” Dutch Secretary of State for the Environment Wilma Mansveld, whose country supports the stopgap step, said in an interview yesterday. “I hope we can come to a solution in one or two years.”

Carbon Permits

The options to strengthen the emissions-trading system floated by the commission include the cancellation of surplus carbon permits, the introduction of mechanisms to support prices and limits on imported credits. To be enacted, they too would require approval by national governments and the EU Parliament.

Backloading is the first step toward an overhaul of the EU greenhouse-gas market and can’t stand alone, according to Denmark’s Lidegaard. The Parliament’s rejection (EUGNEMUQ:US) of the proposal threw a “small bomb into the process,” while German federal elections in September are a political complication for the ministers themselves, he said.

“It’s obvious to everyone that it would be hard to get a clear position from Germany before the elections,” Lidegaard said. “That, of course, doesn’t make it more easy for the rest of the countries.”

Backloading

While most EU countries including the U.K. and Sweden are in favor of backloading, they are short of the 255 out of 345 votes needed for the proposal to pass. That’s because some nations including Germany, Portugal and the Czech Republic remain undecided.

A potential abstention by Germany in a vote would effectively mean a vote by the country against the plan. That would put Europe’s biggest economy in one camp with Poland, Greece and Cyprus, which oppose the plan.

The EU Parliament is unlikely to change its position on the proposed market fix unless governments signal their support, Bas Eickhout, a Dutch member of the assembly, said on April 19.

Representatives of political groups on the EU assembly’s environment committee will meet on April 25 for initial talks on the future of the measure, said Matthias Groote, a German backer of the proposal steering it through the Parliament. It’s too early to say when another vote will take place on the measure in the assembly, he told reporters today in Dublin.

Voting Records

Last week, the EU parliamentarians voted 334 to 315, with 63 abstentions, in favor of an amendment to block the carbon- market fix. The next vote could be tighter after 10 out of 14 lawmakers who requested a change to their voting records said they endorsed the anti-backloading amendment by mistake, according to an updated protocol published by the assembly.

Ireland’s Hogan held out the possibility that Groote would urge some changes to the carbon-fix plan to help salvage it in the Parliament.

“There is, I’m sure, behind-the-scenes discussion taking place to see what modest changes that would be required to bridge the gap and to overcome whatever problems the European Parliament had in the vote last week,” Hogan said. “So we’re leaving it to them initially to come up with a solution to this problem and we want to await the outcome of that.”

To contact the reporters on this story: Ewa Krukowska in Dublin at ekrukowska@bloomberg.net; Jonathan Stearns in Dublin at jstearns2@bloomberg.net.

To contact the editors responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net; James Hertling at jhertling@bloomberg.net.


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