EU Backloading Bill Gets Nod of European Parliament

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Prices of carbon on the market rose by 12 % after the European Parliament voted yesterday in favor of EU emissions trading scheme (ETS) of back loading proposals. The idea is reduce the current oversupply of allowances, thereby pushing up the carbon price.  The parliament voted on Wednesday to let the commission delay the auctioning of up to 900 million CO2 allowances, the reforms to the carbon market could push up the price of carbon and drive billions of Euros of investment in industry energy efficiency measures through to 2020.  In the views of German MEP (Member of European Parliament) Matthias Groote, the brain behind the “backloading” proposals said it would temporarily withhold 900 million carbon allowances from the EU emissions trading system (ETS) in a measure to tackle the abundance of carbon credits in the market that has pushed the carbon to record lows.

Members of the European parliament in Strasbourg, France, voted in favor by 344 to 311, with 46 abstentions, of delaying the auction of 900 million carbon dioxide emission permits, a process termed as backloading.  Major utilities who have made investments in renewable energy, welcomed the legislation, but some industry energy users have opposed its passage, Poland a fierce opponent to the proposed bill, said it would continue to fight the proposal. The price of emitting one metric tone of CO2 rose immediately after the vote to over 4.70( $ 6.10), from under € 4 before the voting process began, according to data from IntercontinentalExchange Inc. The rejection of an earlier proposal to fix the market in April had pushed prices to below $ 3 a ton. However the prices remained low compared to 30 in 2008, before the global recession. Experts opine that carbon prices near current levels are still not yet enough to stimulate clean energy investment, and that long term fixes are required.

The EU has been the world’s largest supporter of measures to reduce CO2 emissions to prevent climate change. Other major economies including China, India and the U.S. have not taken any concrete steps to restrain CO2 emissions leading to global warming. U.S. President Obama had earlier made proposals affecting power plant emissions. The intervention of the EU in the carbon market to increase the prices remains contentious, highlighting the difficulties the bloc has had in implementing the clean energy policies in the midst of a prolonged economic downturn.

The U.K.  Government welcomed the move of the European parliament to rescue the EU’s carbon trading scheme, Ed Davey, UK Secretary of State for Energy and Climate Change said “This is a good decision by the European Parliament and an important step forward for climate change policy”.

There were mixed opinions in Germany over the proposed bill, Environment minister Peter Atmair called the vote “a good foundation for a sound solution” but his cabinet colleague and Economic minister Phillip Roesler, said the decision was “regrettable”, arguing it represents a fresh burden for the industrial sector.

The plan still has to be agreed with EU governments to take effect and needs the concurrence of Poland which depends heavily on carbon rich coal for electricity generation in coal fired power plants which would be hit hard by the increase in CO2 prices.

The focus will now shift from Strasbourg to Berlin, as Germany’s decision on the plan will determine whether it can go ahead.

International Finance Magazine welcomes the move of EU parliament of endorsing the back loading bill, although the law needs concurrence from countries such as Germany and Poland, it will reduce the alarming levels of pollution and promote the use of renewable sources of energy for power generation and allied activities.

Inputs from: The Wall Street Journal


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