Will EU Backloading Vote Rescue The Carbon Market?

MEP Matthias Groote predicts reworked carbon market proposals will be approved by MEPs in Strasbourg today By Jessica Shankleman, in Strasbourg 03 Jul 2013 The European Parliament is poised to back reforms to the carbon market today, that could push up the price of carbon and drive billions of euros of investment in industrial energy efficiency measures through to 2020. At least that is the view of Matthias Groote, the German MEP responsible for the “backloading” proposals that would temporarily withhold 900 million carbon allowances from the EU Emissions Trading System (ETS), in a bid to tackle the glut of carbon credits in the market that has pushed the price of carbon to record lows. Speaking to BusinessGreen ahead of the vote in Strasbourg, Groote, who is chairman of the Parliament’s environment committee, said he was optimistic MEPs will back the measure today, even though a similar proposal was narrowly rejected by 334 votes to 315 back in April . Groote insists the reworked proposals offer a better deal for energy intensive businesses as it would provide new funds for them to invest in energy saving technology before the end of this decade. “We have another approach in this proposal and we have another majority and it’s more innovative,” he said. Under the new plans, 600 million of the withheld CO2 allowances would be channelled through the European Commission and European Investment Bank’s (EIB) NER300 fund, which provides financial support to renewable energy and low carbon projects. However, the additional funding forms part of a compromise between three of the main political parties, which some environmentalists fear will water down the backloading plans to the point that they will fail to drive new investment. Speaking to reporters yesterday, Rebecca Harms MEP, co-chair of the Greens and European Free Alliance Party, questioned the effectiveness of the backloading proposals in the long term, arguing that they merely mask weaknesses in the system. “Backloading 900 million allowances is not going to help the trading system operate properly and help to reduce pollution,” she said. “We have got all these [surplus] certificates on the market… and our ambition is too weak. We need to raise the objective and keep ensuring we have the right price for CO2 so we can stimulate investment.” But some of the Greens also appear to have accepted that backloading will be a crucial first step towards delivering longer term reforms to the market. The group is now calling for the Commission to permanently retire at least 1.4 billion of allowances to address the oversupply issue. The Commission is due to publish its proposals for structural reforms later this year. Many businesses are also keen to see the backloading proposals approved. Earlier this week, 42 companies and trade associations backed a letter from 12 European energy and environment ministers, calling for the latest backloading proposals to be approved. However, other firms and trade associations, including Europe’s biggest business lobby group BusinessEurope, remain opposed to the measure amid fears it could push up the cost of energy. If backloading is approved, it has also warned against the permanent withdrawal of allowances, arguing that such a move would represent unacceptable interference in the market. Groote remains optimistic there is sufficient support in the parliament to pass the backloading plan at the second time of asking and is equally confident the European Council of member states will support the move if it is passed in Strasbourg. But he admitted that if backloading is rejected the current attempt to drive up the price of carbon would be “dead”, and serious questions would be raised about the Parliament’s ability to deliver wider ranging reforms to the EU ETS later this year. “It’s not clear,” he said, when asked what would happen if the backloading plan is rejected. “I don’t know what would happen. But… it will not happen. At least I hope not.” Taylor Scott International