European Parliament Approves Plan to Bolster Carbo
European Parliament Approves Plan to Bolster Carbon Trading
By STANLEY REED
Published: February 19, 2013
LONDON — Lawmakers in Brussels moved Tuesday to shore up the sagging market for carbon emissions permits, a key component of the European Union’s efforts to reduce air pollution.
Prices of carbon allowances, which permit companies to emit greenhouse gases, fell last month to as low as €2.80 per ton, or $3.75, compared with €9 per ton a year ago and €30 per ton in 2008. To reduce the supply of permits and drive up the price, the environmental committee of the European Parliament voted to allow the European Commission to reduce the number of allowances to be auctioned over the next three years.
After the committee’s vote, prices fell to around €4.60 per ton, from a close of €5.13 on Monday. But the panel’s vote had been expected, and the plan still needs approval from the full European Parliament and the governments of the Union’s 27 member states.
“It is really the first step in a long, long process,” said Kash Burchett, an analyst at the energy research firm IHS.
The committee’s vote — 38 to 25, with 2 abstentions — is “a lifeline for the carbon market and for emissions trading as a policy tool for curbing emissions,” said Stig Schjoelset, head of carbon analysis at Thomson Reuters Point Carbon, a market research firm in Oslo.
If the vote had gone the other way, Mr. Schjoelset said, the Emissions Trading System would have been “more or less dead.”
The European Union introduced the system in 2005 in a bid to force polluters like utilities and manufacturers to reduce their carbon emissions. Under the system, companies are allocated a certain number of permits, each allowing them to emit one metric ton of carbon dioxide per year. If emissions exceed the level allowed by the permits, the companies must buy additional permits. Companies that do not comply face heavy fines.
The total number of permits is scheduled to be reduced over time, forcing a corresponding reduction in emissions. The Union is on track to meet its goal of reducing emissions in 2020 to 80 percent of 1990 levels, but that is mainly because the recession has reduced industrial activity and energy use. As a result, companies have a surplus of permits on hand, which depresses their price.
It is widely believed that the European Commission has handed out too many credits. In 2012, for example, ArcelorMittal, the Luxembourg-based steel maker, sold 21.8 million tons of credits — about one quarter of the number it received from the commission — for $220 million. The company said it spent the proceeds on energy-saving investments.
Advocates say that carbon pricing, if properly managed, is the most efficient way to lower emissions. By putting a hefty price on carbon, the system lets investment decisions drive emissions reductions, rather than having governments dictate investment in particular clean energy sources like solar or wind.
But industrialists and analysts say that single-digit prices for carbon permits do not provide sufficient incentive for companies to switch to cleaner fuels and energy-efficient technology.
“Driving energy investment in Europe through a higher carbon price will lower costs,” said David Hone, the chief climate adviser to Royal Dutch Shell and the chairman of the International Emissions Trading Association in Geneva. “That price signal isn’t there today.”
Mr. Schjoelset said a price of €30 to €40 per ton was needed to encourage electricity producers to switch from coal to natural gas, a cleaner fuel. He said it would take a price of €60 to €150 per ton to push utilities to invest in expensive carbon-reducing technologies like carbon capture and storage.
Politicians and analysts said the Parliament committee’s vote might be the first step in restoring the credibility of the Emissions Trading System, which is still considered the world’s flagship carbon program.
“It is important that we get this right, and the sooner we get it right the better,” the European climate action commissioner, Connie Hedegaard, said during an interview Monday.
The plan approved Tuesday would take 900 million carbon credits that are now scheduled to be auctioned from 2013 to 2015 and “backload” them so they are auctioned in 2019 and 2020. That will put a dent in the surplus of carbon credits, which is estimated at two billion tons.
This article has been revised to reflect the following correction:
Correction: February 19, 2013
An earlier version of this article misidentified an analyst at IHT, an energy research firm. He is Kash Burchett, not Kass Burchett.