Plans to freeze the auctioning of a portion of the current glut of CO2 permits to boost their price and encourage firms to invest in low-carbon innovation got the EP's seal of approval on Tuesday. The measures, amended by the EP in July to set stricter conditions for the freeze, are intended to restore the incentive effect of the Emissions Trading System, which is designed to curb CO2 emissions.
“I am pleased that we managed to convince our colleagues that backloading is absolutely necessary for our emissions trading scheme to meet its objectives,” said Matthias Groote (S&D, DE), who is steering the legislation through Parliament, after his report was adopted by 385 votes to 284, with 24 abstentions.
“The ETS is not here to harm our industry, on the contrary. It rewards innovation and efficiency by putting a price on carbon. But it needs to deliver a clear price signal. Exchanges at the climate conference in Warsaw last month highlighted that carbon market schemes are now at a turning point. It is therefore paramount that we let the EU ETS reach its maturity,” he added.
Under Parliament's amendment, already agreed with member states, the European Commission may, in exceptional circumstances, adapt the timing of auctions, provided an impact assessment shows that the sectors concerned will not face a significant risk of companies relocating outside the EU. The Commission will only be able to make one such adjustment, up until 2020, covering a maximum of 900 million allowances.
Since its creation in 2005, the Emissions Trading System (ETS) has set an overall emissions ceiling which is gradually being reduced over the long term. By 2020, emissions from industrial sectors covered by the ETS will be 21% lower than in 2005.
Beneath this ceiling, companies receive or buy credits auctioned by member states. One credit corresponds to one tonne of CO2 emissions. Companies may also sell on unused credits. Limiting the supply of credits ensures that they retain value, so the scheme rewards companies that invest in limiting emissions, thereby tackling climate change.
The growing surplus of emission allowances – due to oversupply and the economic slowdown – has seen the carbon price fall well below levels estimated when the ETS was created. The European Commission therefore proposed measures to enable it to “backload” – or delay - the timing of a portion of the credits to be auctioned.
The Council of Ministers is to vote on the legislation at its meeting on 16 and 17 December. The measures to correct the carbon market can then be implemented by the Commission under powers delegated to it.