The following story has been updated throughout to add comment.
The European Parliament is expected to give the green light next week to the European Commission to start withholding emissions allowances from daily auctions, which would leave the measure just one step away from final approval, analysts said. Back-loading would then start certainly by May, according to a UK official.
The full Parliament will vote on back-loading on 10 December, as confirmed on Thursday in the plenary agenda.
It is unlikely the Parliament will reject the proposal, said on Thursday Niall Mackenzie, head of industrial energy efficiency at the UK department of energy and climate change.
“You can never tell who is going to turn up on the day, who is going to press the right button, so there is always scope for the Parliament not accepting it, but I think that’s very slim – the political party consensus is there,” he said at a conference organised by the Westminster Energy, Environment and Transport Forum in London.
If MEPs pass the proposal, there could be a price rise on the front end by around €1-1.50/tCO2e in the immediate aftermath of the vote, estimated Mark Lewis, former carbon analyst at Deutsche Bank and now an independent energy analyst.
“I would be very surprised if the back-loading vote does not get through plenary this time as more countries have come out in favour than was the case previously,” said Lewis.
May at the latest
If the vote passes plenary it will have to be signed off by the European Council, which has been scheduled for 16/17 December at the Agriculture and Fisheries Council. That step however is just a formal sign off as national governments in the European Council – co-legislator under the EU law – have already backed the measure, proposed by the European Commission to prop up carbon prices in the short term by delaying some of the scheduled supply ( see EDCM 20 November 2013 ).
For back-loading to start, the Climate Change Committee is then to change the auction calendar, a decision which requires a three-months scrutiny period.
“I am pretty confident that [the calendar] would be agreed by January... so the allowances would start coming out of the market possibly as early as April, certainly by May,” DECC’s Mackenzie said on Thursday.
A meeting is scheduled on the 11 December, but according to Graham Stuart, partner at legal firm Baker & McKenzie, it’s unlikely that a decision will come before back-loading is law.
According to analytics firm Tschach Solutions, owned by ICIS, the back-loading will pass the full parliament vote, but not in a landslide victory. “Some European People’s Party [EPP] members will likely reject the legislative resolution, but there was always a big group of back-loading supporters within the EPP,” said Philipp Ruf, senior analyst EU carbon market.
EPP – the largest in the Parliament – has been generally opposed to back-loading, saying it is a market intervention which would increase electricity prices in a time of recession. In an earlier July vote, however, 59 out of 274 MEPs from EPP voted for the measure.
“The group of supporters could grow as more member states now support back-loading. For example, it is possible that more German EPP members support back-loading this time as [Chancellor Angela] Merkel now supports the measure publicly,” Ruf said. Almost all members of the Social Democrats (S&D) and the Greens could vote for the proposal with the potential exception of some Polish and Cypriot MEPs, he added.
This is the state of affairs in the four largest groups:
• The party line of the Greens, which have 58 MEPs, is to support back-loading as a first step to reform the EU emissions trading system, a spokesman said on Thursday.
• The 273 MEPs in the EPP are expected to be split. However, Eija-Riitta Korhola, the party’s rapporteur on the measure, said recently on Twitter the EPP “is consistent” and will not change its position. “It has been ‘nope’ all the time,” she said. MEP Richard Seeber, the EPP coordinator in the environment committee, would not comment on the issue.
• The Liberal Democrats (85 MEPs) have not discussed an official position yet and will do so the night before the vote.
• It was not possible to reach the Social Democrats (194 MEPs).
The full members of the European Parliament (MEPs) have voted on the back-loading proposal twice before. They first voted it down in April, making carbon prices crash below €3.00/tonne of CO2 equivalent (tCO2e). At the second vote in July, the proposal passed by a majority of 33 MEP. 344 voted in favour, 311 against, and 46 abstained. The immediate effect was bearish too as traders sold long positions they had taken up ahead of the vote, but subsequently the progress kept prices above €4/tCO2e. Silvia Molteni