Today, a group of lawmakers of the European Parliament’s Environmental Committee voted in favor of “back loading” 900 million allowances from auction and thus creating a market scarcity in the ETS. The vote was passed with 38 members in favor and 25 against showing a slightly larger margin of victory than initially expected. Due to this favorable result, the back loading plan will now be considered by the European Parliament in April. If the parliament were to approve the plan, the number of emission allowances sold in the market would be substantially reduced.
The over allocation of carbon allowances has harmed the EU-ETS with prices stagnating at €4. In January of this year, the ETS suffered its greatest drop in price with allowances being sold at €2.81 a tonne. The back loading plan is meant to increase the stagnating price of allowances by taking out 900 million allowances momentarily from the ETS and then bringing them back into the market in 2020.
Environmentalists argue that the oversupply of allowances should be permanently deleted from the system to increase the competitiveness of green technology. On the other hand, lobbyists such as BusinessEurope argue that an increase in energy prices due to the ETS will damage Europe’s competitiveness and will increase carbon leakage.
TheCompensators* believe that the ETS should permanently retire up to 1.4 billion emissions allowances which are clearly in oversupply. Harsher measures need to be taken if Europe wants to achieve its emission reduction targets by 2020 and also properly rescue the ETS.