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Run-up to key ENVI vote on back-loading supports EUA

18 Feb 2013 19:52:22 | edcm

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On the eve of a vote on the back-loading proposal at the European Parliament's Environment (ENVI) committee, optimism continued to boost carbon prices on Monday.

On Tuesday, the committee will vote on numerous amendments to a European Commission proposal that seeks to provide legal certainty for the possible back-loading of 900m EU allowances (EUAs) from the significantly oversupplied EU Emission Trading System (ETS).

The amendments tabled include one seeking to block the Commission from passing the proposal; while so-called "consolidated" amendments look to smooth the path for the proposal by stating that the Commission can back-load allowances only once and only if it has a limited impact on installations deemed at significant risk of carbon leakage (see EDCM 7 February 2013).

While the vote will not formally decide if back-loading goes ahead, market experts and traders agree that a negative ENVI note will crush its future.

How strong the support?

The consolidated amendments draw support only from the margins of the EU's political landscape.

Numerous fringe parties back these changes, including the Progressive Alliance of Socialists & Democrats, the Alliance of Liberals and Democrats for Europe, Greens and European United Left-Nordic Green Left, a source close to the matter said, but the major European People's Party does not.

"But it's still possible that individual MEPs in the Committee decide to support these consolidated amendments even if their group hasn't formally endorsed them," the source said.

A second source said that he expects 37 MEPs in the committee to support the proposal, 26 to reject it and the rest to still be undecided. The ENVI has a total of 68 members.

"A positive vote is more likely. But on how many votes will be in favour, it's difficult to make forecast," said Matteo Mazzoni, carbon analyst at Italian energy consultancy Nomisma, on Monday.

Also on Monday, the International Emission Trading Association (IETA) called for the proposal to be supported. "Voting against amendments aiming to provide greater legal clarity would see further policy reform options irremediably lost," the lobby said in a letter addressed to the committee's MEPs.

Next steps

IETA also asked MEPs to support the start of trilogue negotiations - a process of tripartite meetings between the Parliament, the Council and the Commission - to reach a "First Reading" agreement.

The First Reading requires the European Parliament to debate the proposal in its committees, such as the ENVI, before the Parliament itself votes on it; then the Council and Member States examine the legislation, before the Council votes on the matter and delivers a "Common Position". Reaching a First Reading agreement means that Parliament and the Council agree, avoiding a Second Reading and allowing the proposal to become law without further ado.

If the ENVI backs the creation of a trilogue tomorrow, the adopted text will form the basis for these negotiations. Once the parties have reached an agreement, a full session, or plenary, European Parliament will vote on 15 April, the first source explained.

"If the Committee decides to vote against the start of trilogue negotiations, then the ENVI text will go straight to plenary, and then Parliament and Council will try and agree on a second reading agreement," the same source added.

Make-or-break vote

Market participants have previously been optimistic about the vote's outcome. This sentiment has boosted prices recent weeks (see EDCM 11 February 2013).

The benchmark front-year EUA has been bought up to €5.40/tonne CO2 equivalent (tCO2e) on the eve of the vote, according to ICIS' assessment, up from only €3.80/tCO2e on 30 January.

As prices have, in recent sessions, gathered strength as a result of an anticipated positive vote, traders and analysts predict a price collapse if the vote should unexpectedly fail. "We are on the eve of a crucial make-or-break vote in the political process that is needed to continue supporting the EU ETS market," a research note by Societe Generale said on Monday. According to Matthew Gray, carbon analyst at Jefferies Bache, the front-year EUA contract could test €6.50/tCO2e if the vote succeeds, and €2.50/tCO2e if the vote fails. However, gains would be short-lived amid the ongoing oversupply.

"The only factor that could disrupt this is if Germany announces their approval of the back-loading plan shortly after the ENVI vote," he commented in a note on Monday. While IETA still labelled the ETS as "one of the most successful climate policy instruments in the world", a number of green groups on Monday asked authorities to scrap the system completely.

"We believe that the ETS must be abolished no later than 2020 to make room for climate measures that work," associations including Friends of the Earth said. Silvia Molteni

It's still possible that MEPs decide to support these consolidated amendments

Green groups asked authorities to scrap the ETS

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