EU parliament set to call for carbon market

BRUSSELS Sun Dec 18, 2011 10:02am EST

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BRUSSELS (Reuters) - European politicians are expected on Tuesday to vote through an amendment that could pave the way for direct intervention in the EU carbon market, which has sunk to record lows.

Businesses and environmentalists have heaped pressure on the European Commission to bolster the EU Emissions Trading Scheme.

It should be the bloc's flagship tool for cutting carbon emissions, but it has collapsed under the burden of a sovereign debt crisis and oversupply, which the amendment would look to tackle by reducing availability of allowances.

With prices of less than 7 euros ($9) per tonne, it is far below the levels deemed necessary to encourage investment in green energy, estimated at anything from 20 to 50 euros.

"We have not voted yet, but I expect broad, cross-party support for the compromise amendment," Dutch Green Member of the European Parliament Bas Eickhout told Reuters.

"A broad majority in the parliament is really concerned about what's going on with the carbon price."

The vote is not binding. If passed, it would require a further vote next year and debate by member state governments.

But it would "send a strong signal," Eickhout said, and could help to overcome deadlock within the Commission, which has stalled for months on the issue. The Commission would comment "in due course," a spokesman said.

Opposition to intervention has come from heavy industry, which benefits from a low carbon price, while firms calling for action have included Royal Dutch Shell, keen for a price high enough to justify technology such as carbon capture and storage.

Following a letter last week to the president of the European Commission, 15 companies and lobby groups, including Dong Energy, Alstom, Vestas and Shell issued a joint statement on Sunday, calling on the European Parliament to back measures to support the EU ETS.

The joint statement said withholding allowances was "essential to restoring confidence in the EU ETS."

Although the parliamentary vote would not be binding, another signatory of the statement, campaigner E3G said it could sway the Commission by signaling broad political support.

"We are at a do or die moment," Sanjeev Kumar, senior associate at E3G, said. "If they get the vote wrong, billions of euros could be wiped out alongside our future."

'SIGNIFICANT AMOUNT'

Green politicians and other sources have said the vote is more likely to be positive after the introduction of the compromise amendment.

It proposes withholding "a significant amount of allowances" before the start of the third phase of the EU carbon market, which begins in 2013.

A separate amendment proposed setting aside 1.4 billion tonnes of carbon allowances, a figure dating back to a Commission document from May last year on how to increase the EU's ambition on cutting its carbon emissions.

"A tighter ETS cap would raise the level of environmental achievement and would have the effect of strengthening the incentive effect of the carbon market," the May 2010 text said.

"Reducing (carbon) auctioning rights by some 15 percent over the whole period 2013-2020, representing some 1.4 billion allowances, could be sufficient."

For some environmentalists, such as the wind lobby, raising the EU's green ambitions is the most obvious way to increase the carbon price.

They say the current targets of a 20 percent cut in emissions and a 20 percent increase in the share of renewables in the energy mix by 2020 are not ambitious enough.

The compromise amendment is within the context of the proposed Energy Efficiency Directive, which deals with a third target of improving energy efficiency by 20 percent.

So far the EU is far from achieving that and ironically, progress on efficiency could punish the carbon price further, underlining the need for action to support it.

Denmark, which takes over the rotating EU presidency from the start of next year, has a strong domestic commitment to green energy and has also said the environment will be a priority for its presidency.

Environmentalists are looking to the presidency and Climate Commissioner Connie Hedegaard, also a Dane, to build on the EU's achievement in Durban in bringing the Kyoto Protocol, the only global treaty on tackling climate change, back from the brink.

"In our view it puts a lot of pressure on Europe to act decisively where and when it can on climate and energy policy," Jason Anderson, head of European climate and energy policy at WWF, said of the outcome of the Durban talks.

"With the ETS in dire need of reform, the first opportunity is already upon us." ($1 = 0.7665 euros)

(Additional reporting by Jeff Coelho, Nina Chestney and Ben Garside in London; Editing by John Stonestreet and Jon Loades-Carter)

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