* Feb. 19 parliamentary vote too close to call
* Germany still holds key
* Britain carbon price floor starts in April
* Longer term, carbon pricing expected to gain ground
By Barbara Lewis and Nina Chestney
BRUSSELS/LONDON, Feb 13 Europe's failure to
raise carbon prices enough to spur green energy use means more
nations are expected to follow the example of Britain and take
action on their own.
EU efforts in the immediate term are focused on a Feb. 19
vote in a committee of the European Parliament which will
provide the next signal of whether a plan to bolster the EU's
Emissions Trading Scheme can proceed.
Even if agreed, analysts predict it will be years before
European carbon prices rise to the level of at least 40 euros
($53) that analysts say is needed to spur investment in
That's good news for intensive energy users and
coal-burners, but bad for governments committed to 2020
environmental targets for which they need to bolster green
A positive vote next week would give an indication of
whether the European Union has the political will for deeper
reform needed over the longer term.
It would then require further debate among member states and
a plenary session of the European Parliament.
With or without action, analysts say the market's weakness
means national initiatives will proliferate, running counter to
the pursuit of a single EU energy market.
"Fragmentation is something we have already seen. The latest
example of fragmentation is the UK," said David Hone, climate
change adviser for Royal Dutch Shell, regarding
Britain's decision to establish a carbon price floor from April.
"We will see more and more of this. It will be a progressive
process. It's a process that has started."
The European Commission last year proposed a plan to
temporarily remove some of the huge surplus of carbon permits
that has weighed on prices.
It hoped for agreement before the start of the 2013-2020
third trading phase of the carbon market but German indecision
and Polish opposition have helped delay a decision while adding
to market uncertainty.
INDECISION AND OPPOSITION
Coal-dependent Poland has been openly hostile to market
intervention and Germany so far has avoided taking a stance.
While Germany needs a higher carbon price to spur its shift
to renewable energy, Chancellor Angela Merkel faces an election
and industry pressure to avoid action that might raise energy
The chief executive of Germany's largest utility E.ON
, which has supported the idea of removing some carbon
permits from the market, says a minimum CO2 price or a tax might
be necessary, though a reformed EU ETS would be preferable.
Britain has chosen to introduce a carbon price floor from
April to give more certainty to clean energy investment.
It works by topping up the EU carbon price when it falls
below the floor. Starting at around 16 pounds ($25) a tonne, it
will rise to 30 pounds by 2020.
This compares with the current EU carbon price of around 4
euros a tonne and an average 10 euros seen by
The price floor will cost British utilities almost 800
million pounds ($1.25 billion) in 2013-14, according to analysts
at Thomson Reuters Point Carbon. These costs will probably be
passed on to domestic and industrial customers.
Britain's carbon price floor makes it too expensive to burn
coal, meaning still cheaper coal for the rest of Europe. While
British emissions should fall, for Europe as a whole, there
would be no improvement, further showing the need for
pan-European and global carbon pricing if emissions are to be
In the absence of a reliable EU-wide framework, utilities
say they are forced to look to emerging markets outside Europe.
Within the EU, they have closed cleaner gas capacity because
coal is cheap to import and the negligible carbon price provides
no incentive to use the lowest carbon option.
"For the first time, the energy sector is closing power
plants, not for reasons of obsolescence, but for economic
reasons. This has never happened before," said Jean-Francois
Cirelli, president of gas industry body Eurogas and
vice-chairman and president of GDF Suez.
"If there is no intervention, the system is clearly dead. We
will have to switch to another system, taxing CO2, but will it
be at EU level?," he said.
An EU-wide carbon tax proposed in the 1990s failed to
materialise because of lobbying from industry and the difficulty
of getting the EU as a whole to agree.
Several EU nations, however, have introduced energy taxes at
least partly based on carbon content, including Denmark,
Finland, Germany, Ireland, Sweden and Norway. France failed to
pass a bill for a carbon tax in 2009.
Last year, Italy proposed replacing the ETS with a carbon
tax and its environment minister described the ETS as
The scheme is nevertheless expected to stay as it would be
very hard to dismantle and even Poland, the arch-opponent of
higher carbon prices, has not called for it to be scrapped.