EU moves to rescue carbon market

Barbara Lewis and Nina Chestney Brussels and London

European politicians backed an emergency plan to rescue the world’s biggest carbon market from collapse yesterday but hesitated to kick off the next stage of EU action, sending prices down by as much as 20 percent.

Meant to be a pillar of the EU’s climate policy, the Emissions Trading Scheme (ETS) has fallen to a series of record lows because of a huge surplus of allowances, mostly generated by recession in the euro zone.

The European Commission’s proposed rescue plan, referred to as backloading, entails temporarily removing some of the surplus permits that have pushed the ETS to levels far below those needed to make low carbon investment profitable.

Yesterday, members of the European Parliament voted 38 in favour of the proposal, 25 against and two abstaining. But they said they needed more time to decide on a possible mandate for talks on the wording of the legislation.

The commission had hoped backloading would be a quick fix pending deeper reform to come, but it has run into opposition from member state Poland, which relies on carbon-intensive coal for most of its energy, as well as some lobbies in industry and business. Dominant EU member Germany has yet to take a stance.

The views of member states will be sought at a committee meeting next Wednesday.

Before that, possibly next Tuesday depending on the parliamentary timetable, members of the European Parliament are expected to decide whether to give a mandate for talks between the European Parliament, the commission and EU member states on a legal text for backloading, which would speed up the process of getting any final deal.

Carbon prices plunged to a 12-day low of e4.09 (R48) a ton, which compares with an all-time low of less than e3 a ton in January.

By midmorning yesterday, carbon allowances were down 10.55 percent at e4.58. Traders said carbon prices had rallied in anticipation of a positive vote, reaching e5.52 on Monday, the highest in almost a month. – Reuters