Did the European Parliament just kill the the continent's emissions-trading system?
By J.P.
EUROPE’S flagship environmental policy has just been holed below the water line. On April 16th the European Parliament voted by 334 to 315 to reject proposals which (its supporters claimed) were needed to save the emissions-trading system (ETS) from collapse. Carbon prices promptly fell 40% (see chart). Some environmentalists fear that the whole edifice of European climate policy could start to crumble.
The ETS has long been troubled. The scheme is the world’s biggest carbon market, trading allowances to produce carbon which cover about half the European Union’s total carbon emissions. Partly because of weak industrial demand and partly because the EU gave away too many allowances to pollute in the first place, there is massive oversupply in the carbon-emissions market. Prices fell from €20 a tonne in 2011 to just €5 a tonne in February 2013. The European Commission, the EU’s executive arm, therefore hatched a plan to take about 900m tonnes of carbon allowances off the market now and reintroduce them in about five years time when, it was hoped, demand would be stronger (“backloading” in the jargon). This was the proposal the European Parliament turned down.
The rejection was a surprise. The parliament’s environment committee had looked at the plan in February and approved it by a surprisingly wide margin of 38 votes to 25.
As expected, most members of the largest political alliance, the centre-right European People’s Party, voted against the proposal. This was needed, they argued, to protect consumers from higher energy bills. What came as a surprise is the fact that all but four British conservative members of the European Parliament also voted against the plan. In doing so they defied their own government, which has introduced a carbon floor price in Britain that could soon be higher than the European carbon price. And the European Socialists, which had been expected mostly to back the proposals, instead split, with 44 in favour of the plan and 31 against.
In theory the proposal is not quite dead. In a fit of back-pedalling after the vote, the MEPs decided to send the issue back to the environment committee. From there it could come back to the full parliament again. Or the European Commission could come up with a bunch of new proposals. The EU sometimes works by creating a crisis and then stumbling through it—witness the euro crisis, passim. The trouble is that neither the parliamentary committee nor the commission can do anything much unless significant numbers of MEPs change their minds. The parliamentary vote was exceptionally well attended—a measure of its importance—and there were few wavering MEPs.
The real question now is whether the scuppering of the ETS will lead to the dismantling of the EU’s climate policies more generally. European greens and supporters of the ETS hope that it will not. They point out that a combination of special influences was at work in the parliamentary vote which may not be repeated (such as Angela Merkel’s refusal to take a position on ETS reform for domestic reasons). Many European environmental policies are set at national level (subsidies for renewable energy, for example) and a vote on the ETS should not change national opinions.
Against that, the ETS is the only EU-wide environmental instrument and sets a carbon price that affects companies across the board. Large European companies, in particular energy-intensive ones such as chemicals makers, mounted a fierce lobbying campaign against the ETS, and some of them would also like to see a reduction in European subsidies for renewables. National renewable-energy subsidies are under pressure anyway, for budgetary reasons. And as several observers of the parliamentary debate argue, the ETS vote sends a political signal that Europeans do not care much about their flagship environmental policy—a signal that might influence national policies, too.
Which path Europe will go down is likely to be decided if and when supporters of the ETS attempt a more thorough reform of the system, by closing its many exemptions and reducing excess capacity permanently. As Jesse Scott of EURELECTRIC, a lobby group of power generators, puts it: backloading was “damn silly” but “it was also the only way of testing the waters for the necessary structural measures.”
The problem is that even if these measures were agreed upon, they would take years to implement—such is the speed of EU decision-making. And until then, ETS carbon allowances remain below the level of junk bonds.
