European Parliament votes to remove surplus permits from the carbon market

The European Parliament has voted finally to remove surplus permits from the carbon market from next year to prop up allowance prices on the EU Emissions Trading Scheme (ETS), ending months of argument over the plan.

The full assembly voted in Strasbourg to approve the backloading proposal, which will allow regulators to make a one-off delay to scheduled sales of 900 million carbon permits.

The European Commission wanted to intervene in the market to lift carbon prices to a level that prompts companies to cut their greenhouse gas emissions, for example by investing in energy efficiency or switching to renewable energy sources. If the carbon prices are low, it is more difficult that companies invest in that.

Analysts predict prices could at least double due to backloading, but expect it will be years before they rise above the 20-euro level needed to prompt industry and utilities to invest in greener energy.

Despite this initiative, some lawmakers believe the bloc’s carbon market will be irrelevant without further reform. “It’s clear that backloading is not enough. The market is still oversupplied by 2 billion permits, but this buys us time to have a discussion on how to reform it,” said Matthias Groote, the German Socialist lawmaker.

The European Commission proposed backloading as a limited first step to rescue the ETS, its flagship tool to curb emissions of heat-trapping gases blamed for climate change.

In January, it is expected that the Commission will publish a legislative proposal on deeper ETS reforms.

ALLCOT