BRUSSELS/LONDON (Reuters) - Members of the European Parliament on Wednesday will vote on a compromise plan to try to prop up the EU emissions market, the world’s biggest carbon trading scheme.
The market has priced in a yes vote, which would be a vote of confidence for the future of the scheme, but politicians and analysts said it was likely to be tight.
A negative vote on the plan to temporarily remove some of a glut of carbon permits would almost certainly send allowances on the Emissions Trading Scheme (ETS) towards zero and leave the market in limbo for the rest of the decade.
A yes for the proposal, known as backloading, would likely have little immediate price impact as it is largely factored into the market. <CO2/POLL>
In April, members of the European Parliament in Strasbourg, France, unexpectedly rejected an initial backloading proposal by a slim margin, triggering a fall of more than 40 percent in the already battered price of carbon.
To try to win over the doubters, the proposal has been diluted so the allowances would be returned to the market almost as soon as they are taken away, and a fund has been proposed to help energy-intensive industry cut its emissions.
In an interim vote, a parliament committee backed the revised plan on June 19.
HSBC’s head of climate change center Nick Robins said the outcome at Wednesday’s plenary session was “too close to call”.
“It is unclear how the watering down to gain votes will be offset against loss of support because the scheme loses integrity as a carbon reduction mechanism,” he added.
Thomson Reuters Point Carbon analysts said the plenary will likely vote in favor of backloading.
A yes vote would be a political signal and a step towards structural reform of the market, which is meant to be central to EU climate policy and to drive investment in low carbon energy.
“If it’s (backloading) not supported, I don’t think the (European) Commission will have the courage to propose anything better,” said German politician Peter Liese.
He has long supported intervention, but many of his center-right grouping in the European Parliament have not, helping to delay what was meant to be an emergency fix.
They were instrumental in the negative vote in the parliament in April, which drove carbon prices to a record low of less than 3 euros a metric ton compared with the 40-to-50 euros analysts say would shift investment into low carbon energy.
Prices are still only around 4 euros.
If EU politicians reject this amended proposal on Wednesday, they still have the option of supporting the original backloading plan, but given the rejection in April, that is considered unlikely.
The divisions in the parliament reflect divisions in member states and in business.
While utilities are firm supporters of backloading and say the ETS is needed to drive investment in the sector, heavy industry has fought against anything that could drive up energy costs, especially when the United States has gained a competitive advantage because of a boom in cheap shale gas.
At member state level, a deal has been blocked primarily by Poland, which relies on carbon-intensive coal, and by Germany, which has stalled sensitive policy issues ahead of elections in September.
Even with a positive vote on Wednesday, a final decision on backloading will not happen until after the German elections in September, and no permits are likely to be taken away before next year.
Editing by Jeff Coelho