About-turn on backloading

Thursday, 4 July 2013

The European Parliament has voted to freeze the auction of CO2 permits in a move aimed at restoring market incentives for emissions reductions, months after it rejected a similar proposal.

If fully adopted, the move would enable the European Commission to delay the timing of the auction of a portion of credits under the European Union's Emissions Trading System (ETS), a process dubbed 'backloading'. This would have the effect of stabilising the carbon market in the EU by raising prices in the short term and easing pressure later on. An immediate effect of the vote was to push market prices up by about 12% to €4.50 per tonne, while prices two months ago were as low as €3 per tonne.

The ETS is centred on a capped market for the trade of CO2 emission allowances. This allows companies that reduce their emissions to benefit by avoiding the cost of purchasing allowances, or to sell unused allowances at a profit. However, oversupply of emission allowances coupled with the economic slowdown has resulted in a growing surplus of allowances, leading to a fall in carbon prices to levels that are no longer sufficient to act as an incentive for companies to reduce their emissions.

The European Parliament narrowly rejected a proposal to allow backloading in April, but has now agreed to an amended version with stricter conditions. These include a requirement that the timing of auctions must not put the sectors concerned at "significant risk" of companies relocating outside the EU.

EU legislative procedure means that both the European Parliament and the European Council must approve the same text at its first reading before an act can be adopted. Now the Parliament has voted to support the proposal, further negotiations will be held with the European Council with the aim of drawing up a single text which is agreeable to both institutions. Rapporteur Matthias Groote, who is tasked with steering the legislation through the European Parliament, promised that negotiations with EU ministers would begin as soon as possible to find a common solution. "We shall not let the ETS be the victim of short-term concerns. Structural reform of our Emissions Trading System will follow to ensure it remains the cornerstone of EU's climate policy", he said.

European Commissioner for climate action Connie Hedegaard welcomed the vote, which she said sent a clear message on the need for an effective ETS and climate policy for Europe. "We must have a well-functioning European carbon market to boost innovative low-carbon technologies in Europe," she said. Hedegaard called on the European Council to take a decision to allow the structural reform of the ETS to begin "as soon as possible."

The carbon market created in 2005 under the ETS sets a gradually reducing ceiling for carbon emissions which would see emissions from industrial sectors covered by the scheme falling to levels 21% below their 2005 levels by 2020.

Researched and written
by World Nuclear News