TheCompensators* » Members of Parliament reject backloading proposal

Members of Parliament reject backloading proposal

Today with a vote of 334 against and 315 in support, Members of the European Parliament rejected the plans to delay or backload the sale of 900 million carbon allowances. With the outcome, businesses and green groups were left disappointed and critics have questioned the existence of the ETS and believe that the EU has damaged its reputation as a global leader in the fight against climate change.

The backloading proposal was defeated mainly by a coalition of centre-right Members of Parliament who opposed the plans on the grounds that a higher carbon price would interference with the market-based mechanism and could lead to higher energy bills in Europe. Also, parliament members who are skeptic of climate change rejected any steps to try and fix the system.

Analysts and economists predict that the decision will cause the price of carbon to hit record low prices in the upcoming days since the market will be fixed from its excessive oversupply of allowances. In the aftermath of the vote, the price of carbon had all ready fallen down to a new record low of €2.63 a tone. Energy and climate ministers of Germany, France, Italy, the UK, Sweden and Denmark stated that the rejection of the backloading plan would divide member states making each state pursue their own carbon taxes or reforms, for example, the UK’s controversial carbon floor price.

Given todays decision, attention will be focused on the European Commission for a wider package of reforms to be designed possibly for the fourth phase of the ETS. Sadly, a package of reforms is unlikely to be written anytime soon and the ETS is unlikely to see any fundamental changes until 2015 at the earliest. All eyes will be on the European Commission to design reforms such as through a permanent retirement of excess carbon allowances, tighter limits on the number of carbon offsets that can be used in the market, or lower emissions caps on those firms covered by the scheme: all possible solutions to fix an oversupply of allowances.

On future changes to the ETS, EU Climate Commissioner Connie Hedegaard stated, “the proposal will now go back to the parliament’s Environment Committee for further consideration. Europe needs a robust carbon market to meet our climate targets and spur innovation. The commission remains convinced that backloading would help restore confidence in the EU ETS in the short term until we decide on more structural measures.”

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