Parliament votes reform for better European Co2 market but critics want it sooner than later

Tough to compromise climate energy with industry? Not for Miguel Arias Cañete, Member of the EC in charge of Climate Action and Energy, who received the CEOs of the energy intensive industries earlier in the month. (EC Audiovisual Services, 19/02/2015)

Tough to combine climate action with industry? Not for Miguel Arias Cañete, Commissioner in charge of Climate Action and Energy, who received the CEOs of the energy intensive industries earlier in the month. (EC Audiovisual Services, 19/02/2015)

Yesterday at the European Parliament a crucial vote for environmental protection was cast. The Environment Committee of the Parliament made a decisive step towards the limitation of greenhouse gas emissions in the Old Continent, combatting climate change. What is known as the biggest carbon emission market in the world, the EU, will be tackling the issue with a substantial reform in its Cap-and-Trade system, which was voted only yesterday.

Cap-and-Trade systems

Cap-and-Trade systems is another proud European invention. Today it is a global environmental plan, used by most of the developed world, in order to limit industrial carbon pollution. Big industrial plants under these preferred systems have a cap or limit to which they can emit Co2. The companies that pollute more than this cap, mostly due to their size and not because they want to destroy the planet, they can then buy “pollution rights”. So you got it well; there is a price per metric tone of Co2 that the big industrial plants of Europe and the world can “purchase”. On the other hand, if an industry emits less than their “cap”, they can “trade” the remaining with other fellow companies in the “carbon market” auction. In any case, companies need to reach their “carbon cap” on an annual basis, otherwise a heavy fine is imposed to them.

Europe’s pioneer Cap-and-Trade system, the largest one in the world, is called “European Union Emission Trading System (EU ETS)”. Yesterday’s vote by the MEPs is aimed at strengthening ETS and making it more competitive and effective. One of the big problems that the EU crisis has brought to Europe, besides unemployment and life standards deterioration, was the drop of the price per Co2 metric tonne in the carbon market (ETS). This mainly happened because production and demand was low and thus “nobody” needed to buy those “redundant” extra metric tonnes of Co2. Thus, the price from €30 in 2008, at the beginning of the crisis, tumbled down to less than €7 per tonne last January, to close to €7.60 only yesterday. One can understand that with Co2 “on sale”, European industries all those years were not so keen or motivated to pollute less the environment. In addition to that, an approximate excess of 2 billion Co2 tonnes flooded the European market.

The reform

It was high time for a reform by the lawmakers of Europe to fix this. Yesterday with 57 votes in favour, 10 against and one abstention, the environment committee of the European Parliament proposed a legal reform text to be immediately negotiated with the Commission and the Council, without the urgent need of a plenary vote. According to this proposed reform, a “market stability reserve” (MSR) will be able to secure the “well-being” and competitiveness of the European carbon market. Consequently all the excessive carbon allowances surpluses will be removed from the market and put into the MSR. Thus, price fluctuations and surpluses will be confined in this way.

Nevertheless, as always, in the 28 nation bloc it is usual that not all member states nod along. Particularly in this case there has been substantial criticism on the timeframe set yesterday at the European Parliament. To be noted here that the European Commission had initially set the date of 2021 for the reserve to be fully operational, while some powerful member states like UK, France and Germany wanted to set 2017 as the “green” deadline. Finally, the Parliament yesterday agreed to meet somewhere in the middle, setting the end of 2018 as the year the Market Stability Reserve would kick-off.

The Critics

It goes without a say that critics ran as early as yesterday evening to underline this significant delay. Freak de Jong, policy officer at Carbon Market Watch said to the Guardian on the matter: “Postponing necessary reforms until 2019 is simply irresponsible in times of a climate crisis”…“Every year we wait with setting up the reserve, the surplus that is suffocating the EU carbon market will grow bigger, pushing the EU’s cornerstone climate instrument closer to the brink of collapse.” Furthermore, Sam Van des plas, WWF Climate and Energy Policy Officer, said to Euractiv: “The ETS now has accumulated a massive oversupply of emission allowances and it’s not delivering the carbon price signal that we need. If this is not dealt in Brussels, then member states will take the matter in their own hands and we will look at carbon taxation policies, standards for the power sector. So it needs to be dealt with urgently”.

The supporters

At the same time, many voiced their opinions in favour of the environment committee’s decision. “The European Parliament is sending a strong signal that it is serious about fighting climate change while at the same time bearing in mind the concerns of industry,” stated MEP Ivo Belet to Bloomberg. What is more, MEP Gerben-Jan Gerbrandy, stressed:  “The environment committee has sent a strong signal to the council by substantially improving the commission proposal” …“The ETS should start working again to facilitate the transition to a low-carbon economy.”.

Even the member states that wanted the reserve running in 2017 and not in 2019 like the MEPs voted yesterday, have expressed a reserved optimism of the measures taken. The Guardian captured a quote by the British Labour MEP Seb Dance on the issue: “We still believe that this reform should come sooner rather than later”…“However, the compromise deal does represent a significant improvement on the suggested start date of 2021. We have ensured that the number of backloaded and unallocated allowances will be reduced and won’t be returned to the market, which would lead to further destabilisation.”

All in all, the voted reform in the EU’s Emission Trading System (EU ETS) is certainly a positive step in regaining competitiveness in the EU carbon market, as it will restore low prices and will manage the excessive CO2 “credits”. The Sting will follow closely the matter, as it will evolve through the imminent negotiations of the Parliament, the Commission and the Council for the law to get its solid and most effective form.

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  1. […] bring about new and additional costs to doing business. In fact, the European Parliament has just voted to reform the European carbon market, removing available credits and effectively increasing the […]

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