BRUSSELS/LONDON (Reuters) - European politicians backed an emergency plan to rescue the world's biggest carbon market from collapse on Tuesday but hesitated to kick off the next stage of EU action, sending prices down by as much as 20 percent.
Meant to be a pillar of the European Union's climate policy, the Emissions Trading Scheme (ETS) has fallen to a series of record lows because of a huge surplus of allowances, mostly generated by recession in the euro zone.
The Commission's proposed rescue plan, referred to as backloading, entails temporarily removing some of the surplus permits that have pushed the ETS to levels far below those needed to make low carbon investment profitable.
On Tuesday, members of the European Parliament voted 38 in favor of the proposal, 25 against and two abstaining. But they said they needed more time to decide on a possible mandate for negotiations on the wording of the legislation.
The Commission had hoped backloading would be a quick fix pending deeper reform to come, but it has run into opposition from member state Poland, which relies on carbon-intensive coal for most of its energy, as well as some lobbies in industry and business. Dominant EU member Germany has yet to take a stance.
The views of member states will be sought at a committee meeting on February 27.
Before that, possibly next Tuesday depending on the parliamentary timetable, members of the European Parliament are expected to decide whether to give a mandate for talks between the European Parliament, the Commission and EU member states on a legal text for backloading, which would speed up the process of getting any final deal.
Carbon prices plunged to a 12-day low of 4.09 euros a tonne, which compares with an all-time low of less than 3 euros per tonne in January.
By 1032 GMT, carbon allowances were down 10.55 percent at 4.58 euros.
Traders said that carbon prices had rallied strongly in anticipation of a positive vote, reaching 5.52 euros on Monday, the highest in almost a month.
At every stage, debate in Brussels has been accompanied by furious lobbying.
Those supporting the Commission emergency plan to remove some of the surplus of carbon allowances say the action is essential as a first step to deeper reform.
Otherwise, the power industry could face a decade without any kind of investment signal and carbon emissions would almost certainly rise as there would be no deterrent to burning carbon-intensive coal.
Those against the plan say the carbon market's weakness is just a reflection of weak demand in difficult economic times and that action to boost the carbon price would increase energy prices, reducing EU competitiveness on world markets.
Environment Committee Chairman German politician Matthias Groote said the environment committee had sent a clear signal "in favour of a strong and healthy emissions trading system".
He added in a statement, "A stronger carbon price will help catalyze Europe's transition towards a low-carbon economy."
Climate Commissioner Connie Hedegaard in a tweet welcomed a "clear, positive vote", while Polish Environment Minister Marcin Korolec said, also by Twitter: "Common position still far away".
A plenary session of the European Parliament will debate the issue in April.
Additional reporting by Ben Garside,; Editing by Alison Birrane and Jane Baird