Carbon price rises following European backloading vote

Although the bill may not become law, multinationals such as Shell, and energy secretary Ed Davey, are calling for further structural reform of the EU-ETS.

Prices of carbon on the market rose 12% following the European Parliament's vote yesterday in favour of EU Emissions Trading Scheme back-loading proposals.

The bill could determine the amount that industry in Europe will pay for its energy over the next 40 years by increasing the price of carbon allowances in the EU emissions trading scheme (EU-ETS) through a temporary withdrawal of emission permits from the market.

Today, EUAs are trading €.35 higher at €4.68, a rise of around 12%.

Edward Davey, Secretary of State for Energy & Climate Change, welcomed the vote, saying: “This is a good decision by the European Parliament and is an important step forward for climate change policy. We need a stable carbon market so we get a more certainty for investors so emissions reductions can be achieved at the lowest cost possible."

He said that the next challenge was to "focus on securing agreement to the proposals in Council in order to facilitate a deal", referring to the next stage in the passage of the bill, which will see discussions between the European Parliament, the Commission and the Council of Ministers, where most countries support the plan.

However, Poland is opposed, while Germany and Spain are undecided. It therefore remains unclear whether the bill will gain enough support to become law.

“Alongside this," Davey continued, "there should be a parallel focus on the urgent need for structural reform of the European Emissions Trading Scheme, in order to promote growth in low carbon industry in the longer term. We are calling on the European Commission to bring forward legislative proposals by the end of this year, along with 11 other EU Member States”.

The bill is intended to make it cheaper for companies to invest in clean technology such as renewable energy.

Opponents charge that it will make the price of fossil fuel-derived energy more expensive for high energy users such as the paper and steel industries.

Royal Dutch Shell and other multinationals have welcomed the vote, agreeing with Davey's call for structural reform.

Shell’s chief climate change adviser, David Hone, said that: “Backloading sends a political signal about the importance of the EU ETS, but does not address the structural problems. We urge the Commission to come forward as soon as possible with proposals for structural reforms,” he said.

What this lobby group would like to see is permanent cancellation of allowances that have been distributed too liberally, causing a glut on the market and prices to fall to a level that cannot support the amount of investment in low carbon technology required to tackle climate change.

The Renewable Energy Association's Head of Policy, Paul Thompson, while welcoming the vote, also agreed with this point: "Although the UK has already introduced its own ‘Carbon Price Floor’ designed to top up the carbon price, it is clearly preferable for carbon prices to be stable across the EU. Today’s vote goes some way to achieving this, and will reduce the risk of UK energy intensive industries being put at a competitive disadvantage. However, we remain of the view that wider scale reform of the EU ETS is needed to fix the longer term problems with the market.”

Analyst Thomson Reuters Point Carbon issued a statement saying that, should the measure become law, the price of carbon could rise to €8.80 by 2015, but cancellation of issued allowances will be required to let it rise higher.

Disagreements over policy within opponents of the move gave the swing votes to a small number of Green Party MEPs, allowing the passage of the draft law that had only been rejected by the Parliament two months previously, on the grounds of market interference.

The process leading up to the vote was subsequently highly criticised by all parties.

Bas Eickhout, a member of the Green Party, said that "Within the European People's Party it was so politicized, it was a fight between different strands in the party. For a lot of people, they had no idea what they were voting about. The longer the process went on, the more politicized it got and the more complicated it got for MEPs".