June 19, 2013 / 10:57 AM / 4 years ago

EU politicians to try again to rescue carbon market

BRUSSELS (Reuters) - European Union politicians are likely to back a plan to support prices on the EU carbon market on Wednesday, in a step towards resolving debate over whether to prop up the world’s largest emissions scheme.

Even if the vote, expected after 3 p.m. (1300 GMT), is positive, the proposal to temporarily remove some of a glut of allowances from the EU Emissions Trading Scheme (ETS) faces further hurdles.

To become law, it would require backing from a session of the full European Parliament at the start of July and from individual EU member states.

Following a parliamentary defeat in April, EU lawmakers have changed the wording of the proposal, known as backloading, aiming to win over opponents.

The European Parliament’s largest group, the center right European People’s Party, which previously helped to block the proposal, this week lent support. One of its leading members said he was optimistic it would pass.

Yet diluting the wording has lost the goodwill of some of those who originally backed it.

Some members of the Green Party say they will vote no at committee level, although they still want wider structural reforms to the market, which are meant to follow the emergency rescue plan.

Carbon prices have reacted to the twists and turns of the debate, which has dragged on for years. Price swings, often in excess of 10 percent, have been exaggerated by the weakness of the market.

The April parliamentary defeat pushed the carbon price to a record low of less than 3 euros a tonne. Allowance prices have recovered to trade above 4 euros on expectations of a yes vote.

DEEP DIVISIONS

The purpose of the EU ETS is to help persuade operators of power plants and factories across Europe to switch to greener energy, but carbon prices need to be much higher to drive such change.

Vapour pours from a steel mill chimney in the industrial town of Port Kembla, about 80 km (50 miles) south of Sydney July 7, 2011. REUTERS/Tim Wimborne/FILE PHOTO

Opponents to bolstering prices include those who do not wish to pay more to cover their carbon output, those opposed to intervening in markets generally, and those who doubt the move will boost carbon prices to meaningful levels.

Market analysts say even with backloading, the carbon price will remain far below the 40-50 euro price seen high enough to drive carbon-cutting investment in greener energy.

Thomson Reuters Point Carbon has estimated backloading will raise permit prices within two years to around 10 euros, before a retreat to 6 euros by the end of the decade.

European heavy industry is particularly sensitive to the idea of higher costs related to energy when U.S. rivals are benefiting from cheap shale gas.

Yet some energy firms, especially utilities, strongly favor supporting the EU ETS, seeing it as the cheapest way to drive innovation in lower carbon energy sources.

Among EU members, Poland, whose economy depends on coal, has been a vehement opponent, while Germany has failed to take a stand ahead of elections in September.

Germany’s economy ministry has reflected the views of heavy industry, while the environment minister has backed the idea.

Despite the stance of Germany and Poland, there might be sufficient backing from other states for the plan to win agreement at member state level, if it can get parliamentary approval, EU sources say.

Britain has been at the forefront of calls for backloading, as a first step towards deeper reform.

It has agreed a carbon price floor and needs a higher carbon price to justify continued use of carbon-free nuclear generation and development of carbon capture and storage technology.

UK Energy and Climate Change Secretary Edward Davey said this week he hoped for agreement on legislative proposals for deeper carbon market reform by the end of the year.

Additional reporting by Nina Chestney and Andrew Allan in London; editing by Jason Neely

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