EU ETS in turmoil as backloading plan rejected

In a shock decision today, the European Parliament has voted against the European Commission intervening in the EU’s Emissions Trading Scheme (ETS) to backload allowances; widely seen as essential in helping to raise the carbon price.

In July last year, the Commission outlined its plan to bolster the carbon price in the EU ETS by tackling the surplus of allowances, which has plagued the scheme since its launch in 2005.

Previous analysis conducted by the Commission had assessed the feasibility of backloading, i.e. temporarily withholding carbon emissions allowances - from 400m up to 1.2bn – due to come to the market between 2013 and 2015.

Although the vote was very close (315 in favour, 334 against and 60 abstentions), many believe the European Parliament’s decision now leaves the EU ETS in complete disarray.

According to Stig Schjolset, head of EU Carbon Analysis at Thomson Reuters Point Carbon, carbon prices within the EU ETS will be hit hard by the vote.

“We do not envisage prices rising much above the current EUR3 ($4) mark and they may well drop lower at least until the end of the third phase.”

His gloomy prediction was that the vote will make “the EU ETS irrelevant as an emissions reduction tool for many years to come”.

Equally pessimistic is Hans ten Berge, secretary general of Eurelectric, who said that “this vote is a dangerous set-back for the internal energy market and for EU carbon goals”.

While, Remi Gruet, senior climate advisor at the European Wind Energy Association (EWEA), which had agreed with the backloading plan, believes the decision “makes the ETS irrelevant in Europe's bid to reduce the use of fossil fuels. The carbon price will continue having no impact on investment decisions in the power sector”.

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