EU emission trading system suffers serious setback

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Source: GLOBE SERIES

The European Union's flagship Emissions Trading System was dealt a serious blow this week when the European Parliament rejected a short term plan to boost the price of carbon by reducing the number of permits available to key industry sectors.

The short term plan would have introduced involved 'backloading' of permits by member states to their industries by holding them back from auction for several years. A huge surplus of permits has swamped the market leading to an exodus of carbon traders from this market due to unprecedented low prices. (See GLOBE-Net article 'World Carbon Markets at a Turning Point'.

Under the 'backloading' plan carbon auctions would have been postponed until later in the current phase of the scheme, which runs to 2020. However, members of the European Council (MEPs) voted 334 to 315 against the plan, leading many to question the EU's credibility with respect to climate leadership.

Industry reaction was swift. Traders took the negative vote as a signal to sell, driving the market down to its lowest yet to 2.63 euros a tonne down 34 percent from 3.14 euros before the vote.

Rob Elsworth, a campaigner at emissions trading NGO SandBag, quoted in a EurActiv article said: 'It's now incumbent on those MEPs who said they support the long-term success of the EU ETS to act to prevent the EU's climate policy from drifting dangerously off course. In the meantime, member state climate policies are now likely to become more fragmented and this will have a negative impact on the common market.'

The day prior to the EU Council vote a group of 22 non-governmental organizations (NGO's) released a report calling for the ETS to be completely scrapped, arguing that the slight decrease in emissions from 2008 to 2010 was not the result of the ETS but instead entirely due to the economic crisis.

'The EU must acknowledge that the ETS experiment has not worked,' said Lyda Fernanda, from Transnational Institute. 'Trying to fix this scheme will in fact close the door to effective and fair climate policies.' The report, EU ETS myth busting: why it can't be reformed and shouldn't be replicated, labelled the backlogging plan a ridiculous proposition.

The EU's Climate Commissioner Connie Hedegaard said the rejection of a quick fix to the ETS was not a 'death blow' to carbon markets, despite lunging prices in the world's largest carbon trading scheme.

'We will now reflect on the next steps to ensure that Europe has a strong EU ETS,' Hedegaard said in a Reuters report. 'The market, the investors and our international partners are all waiting.'

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