* Vote hangs in the balance
* Industry opinion divided, Poland opposes, Germany
* Longer term structural reform would take time
By Barbara Lewis and Nina Chestney
BRUSSELS/LONDON, April 9 Months of bitter
argument culminate next Tuesday in a make-or-break vote on an
attempt to prop up the European Union carbon prices, which
plunged to record lows earlier this year.
A proposal put forward by the European Commission last year
to remove temporarily some of the glut of carbon allowances that
has depressed the Emissions Trading Scheme (ETS) was meant to be
a quick and easy fix.
But opinion is deeply divided and EU sources say a defeat in
a plenary session of the Strasbourg parliament expected on April
16 would almost certainly kill the short-term plan.
In theory, the vote is on a highly technical amendment to
shore up the legality of removing permits from the scheme, which
is being debated in parallel by member states.
"It's a tiny little proposal, but it's become an enormous
debate because it's seen as the opening skirmish," one EU source
said on condition of anonymity.
The short-term plan would be a prelude to longer-term
structural reforms, such as the permanent removal of allowances.
"It is being watched internationally in terms of a test of
the European Union's will to save its carbon market," Bryony
Worthington, founder of non-governmental organisation Sandbag,
Within the European Parliament, the single biggest political
group, the European People's Party, has mostly opposed the
In contrast, more than half of the EU member states has
backed it, but a few, including coal-reliant Poland, have not.
Dominant member state Germany, facing an election year, has
refused to take a position as industry complains a higher ETS
would drive up energy costs, reducing its competitiveness.
Chemical giant BASF has argued for longer term
reform, while opposing short-term intervention.
"Shale gas has made energy prices drop dramatically in the
United States, while that is not so in Europe. We need to take
that into account," Wolfgang Weber, a vice president at BASF,
The Commission has sought to address warnings from some in
industry that they are in danger of being driven out of Europe
with a "carbon leakage" list of industrial sectors entitled to
free carbon allowances to prevent them leaving the continent and
just adding to pollution elsewhere.
A study on Tuesday from Dutch consultancy CE Delft, which
has given advice to the Commission on policy issues, noted the
existing list, to be revised next year, was drawn up on the
assumption of a 30 euro ($39) carbon price, 10 times higher than
the historic low of less than 3 euros touched in January.
Of the biggest industrial sectors, it found only crude oil
and natural gas extraction should still be entitled to free
allowances, whereas other leading energy users, such as oil
refining, cement and iron and steel should have to pay for
permits to pollute through auctions of allowances.
Others in industry back the stop-gap measure, referred to as
backloading, of temporarily removing permits and returning them
to the market later.
Royal Dutch Shell, for instance, which is keen to
promote natural gas, rather than more carbon-intensive coal, has
lent prominent support. So too have many in the power sector.
Oystein Loseth, president and CEO of Sweden's Vattenfall,
said the European Union was "at a crossroads".
In one direction, it faces a fragmentation of EU energy and
environment policy as some states would take their own measures
to support the ETS. Britain already has a carbon price floor.
The alternative route would lead to a single, efficient
market-place and ultimately reduced costs. "The ambition must be
to re-establish the ETS as a strong driver," Loseth said.
Those who want backloading, also want deeper reform but say
that will take too long under EU processes that require
parliament and member states to endorse proposals from the EU
Commission officials have admitted time is running out for
agreement on far-reaching measures before the current team of
commissioners steps down next year.
EU carbon prices have crept up since the January low to
around 5 euros a tonne as traders have bet on a positive vote.
Analysts predict a 'no' will drive the price towards zero.
"The plenary vote on 16 April will be close, and therefore
represents another do or die moment for the troubled European
ETS," said Matthew Gray, carbon analyst at Jefferies Bache.