Updated: European Parliament backs new carbon back-loading proposal

(This story has been updated throughout.)

European lawmakers on Wednesday backed an amended version of the back-loading proposal, considered a crucial short-term fix for the 2bn oversupply in the EU Emissions Trading System (ETS). The next step will now be approval from EU states in the European Council.

A majority of 33 members of the European Parliament voted to delay the sale of no more than 900m EU allowances (EUAs) in phase III. This means the 900m figure – also proposed by the European Commission and representing less than half of the current oversupply – is now part of the back-loading amendment to the emissions directive. Until now, the proposal had only clarified the Commission’s legal powers to change the EUA auctioning calendar.

The amended version passed on Wednesday also states that back-loading can be adopted only once and after an assessment shows no significant impact on sectors particularly exposed to carbon leakage – the risk of losing business to countries with milder emissions legislation.

All the other amendments to the proposal were rejected, including to reintroduce the back-loaded EUAs earlier than planned, which analysts previously said would have weakened the impact on supply.

Prices rose after the vote, paring early-morning losses triggered by fresh fears that the European People’s Party (EPP) opposition would have led to a second rejection following the first one in April.

And now?

The parliament did not formalise its position in order to allow for trialogue negotiations with the Council, the EU’s other lawmaking body. The aim is to speed up talks and agree a single text in the first reading.

Matthias Groote, the chairman of the parliament’s environment committee who is steering the legislation through Parliament, now has the mandate to negotiate with EU countries.

“We will start negotiations with EU ministers as soon as possible and seek a common solution that will allow the ETS to fulfil its purpose,” he said in a statement.

Negotiations might be helped by the rejection of an amendment reserving revenues from the sale of two-thirds of the back-loaded EUAs for a low-carbon fund. Experts feared this would have led to long discussions among EU countries stripped of the power to decide domestically how to use those revenues.

However, uncertainty over how the Council will decide on the proposal remains high, as key countries such as Germany and Spain have yet to announce their positions.

Lobbying against the proposal looks all but finished. Polish environment minister Marcin Korolec – one of the countries most opposed to back-loading given the high share of coal-fired electricity generation – said on Twitter that he “will fight for market and jobs”.

The Greens’ announced “gamble”

The fact that the proposal backed by the parliament is stronger than the compromise recommended by the environment committee (see EDCM 19 June 2013) stems from a combination of winning/losing strategies adopted by the EPP and the Greens.

Parts of the EPP – despite their coordinator Richard Seeber being involved in drafting the compromise – are markedly against the measure, on the grounds that it would increase energy prices during the recession.

But the strategy of some hardliners to vote against the compromise did not pay off, as the version finally passed by the parliament lost provisions that Seeber managed to get included. According to Liberal member of the European Parliament (MEP) Chris Davies, the EPP “cut off [the] nose to spite [the] face”, as the party is “so opposed to [the] back-loading package they voted against amendments intended for them”.

Conversely, for the Greens, the proposal adopted “is better than the [environment committee] outcome”, commented Green MEP Bas Eickhout on Twitter. The party had already announced that it would vote against the earlier reloading on the grounds that it would not have supported prices enough (see EDCM 25 June 2012).

Focus on structural reform

The result already partially shifted the focus of the debate towards the implementation of a structural reform.

Connie Hedegaard, EU Commissioner for Climate Action, welcomed the vote, saying “the sooner [the Council takes a decision], the better, so that we can move on to the structural reform of the ETS as soon as possible”.

The same call came from a series of stakeholders such as power lobby group Eurelectric and green organisations.

The Commission said it aims to put forward a structural reform of the EU ETS by the end of the year. Silvia Molteni