The European Parliament on Tuesday approved a rescue plan for the European Union’s system for trading carbon-emission credits.
The lawmakers hope to revive prices for carbon credits, which have been so low that the system is creating few incentives for smokestack industries to cut back on their emissions of greenhouse gases.
Although many experts see the plan as little more than a stopgap action, “today was extremely important to get the first emergency measures started,” said Marcus Ferdinand, an analyst at Thomson Reuters Point Carbon, a market research firm in Oslo.
“This shows the European Union cares about its emissions trading scheme.” The approval by the Parliament in Strasbourg, France, had been widely expected, and the carbon-credits market reacted only modestly.
The price of a carbon allowance ticked up about 10 euro cents, to 4.90 euros, before settling back to about €4.80, or $6.60.Europe’s Emissions Trading System, begun in 2005, is the largest and most ambitious effort yet to use markets to regulate greenhouse gases.
Under the program, businesses like steel mills and coal-fired power plants are required to obtain permits for their allowable emissions of carbon dioxide — authorizations they can assemble either through allocations from regulators or through auctions.
Each allowance permits a company to emit one metric ton of carbon dioxide. The plan the Parliament approved Tuesday would delay the allocation of a third of the new permits that had been scheduled to be offered in the next three years, as a way to make them scarcer and presumably drive up their price, creating more of a cost incentive for polluters to reduce emissions or move toward clean-energy technologies.
But the financial crisis and its aftermath sharply reduced European economic activity like steel making, undermining the carbon-credit price, which has plummeted from a level of about €28 five years ago.
Moreover, huge government subsidies for renewable energy sources like wind and solar in countries like Germany and Britain have also reduced the influence of the carbon trading system.
The troubled experience of Europe with carbon trading has also discouraged efforts to establish large-scale carbon markets in other countries, including the United States, though California and a group of Northeastern states have set up smaller regional markets.
Current trading prices are not considered sufficient to give companies much incentive to invest in clean technologies or reduce their use of coal, which emits more carbon dioxide than other fossil fuels like natural gas. “Below €20 has no impact on investment decisions,” said Roland Vetter, an analyst at CF Partners, a commodities trading house in London.
And yet the price of carbon credits has come back from a near collapse in April, when it fell below €3 a ton after the European Parliament voted against a previous rescue effort.
The vote Tuesday, with 385 in favor and 284 against, enables officials to move ahead with a specific proposal for how to withhold about 900 million carbon allowances over the next three years.
That would amount to about a third of the number that would otherwise be issued. The plan is not expected to be formally put in place until April or May. Analysts said there could be a squeeze in allowances in the short term that could drive up prices next year.
But over the long run, they said, the market is likely to be oversupplied with carbon allowances through 2020, when the current phase of the Emissions Trading System is set to expire.
nytimes.com
The lawmakers hope to revive prices for carbon credits, which have been so low that the system is creating few incentives for smokestack industries to cut back on their emissions of greenhouse gases.
Although many experts see the plan as little more than a stopgap action, “today was extremely important to get the first emergency measures started,” said Marcus Ferdinand, an analyst at Thomson Reuters Point Carbon, a market research firm in Oslo.
“This shows the European Union cares about its emissions trading scheme.” The approval by the Parliament in Strasbourg, France, had been widely expected, and the carbon-credits market reacted only modestly.
The price of a carbon allowance ticked up about 10 euro cents, to 4.90 euros, before settling back to about €4.80, or $6.60.Europe’s Emissions Trading System, begun in 2005, is the largest and most ambitious effort yet to use markets to regulate greenhouse gases.
Under the program, businesses like steel mills and coal-fired power plants are required to obtain permits for their allowable emissions of carbon dioxide — authorizations they can assemble either through allocations from regulators or through auctions.
Each allowance permits a company to emit one metric ton of carbon dioxide. The plan the Parliament approved Tuesday would delay the allocation of a third of the new permits that had been scheduled to be offered in the next three years, as a way to make them scarcer and presumably drive up their price, creating more of a cost incentive for polluters to reduce emissions or move toward clean-energy technologies.
But the financial crisis and its aftermath sharply reduced European economic activity like steel making, undermining the carbon-credit price, which has plummeted from a level of about €28 five years ago.
Moreover, huge government subsidies for renewable energy sources like wind and solar in countries like Germany and Britain have also reduced the influence of the carbon trading system.
The troubled experience of Europe with carbon trading has also discouraged efforts to establish large-scale carbon markets in other countries, including the United States, though California and a group of Northeastern states have set up smaller regional markets.
Current trading prices are not considered sufficient to give companies much incentive to invest in clean technologies or reduce their use of coal, which emits more carbon dioxide than other fossil fuels like natural gas. “Below €20 has no impact on investment decisions,” said Roland Vetter, an analyst at CF Partners, a commodities trading house in London.
And yet the price of carbon credits has come back from a near collapse in April, when it fell below €3 a ton after the European Parliament voted against a previous rescue effort.
The vote Tuesday, with 385 in favor and 284 against, enables officials to move ahead with a specific proposal for how to withhold about 900 million carbon allowances over the next three years.
That would amount to about a third of the number that would otherwise be issued. The plan is not expected to be formally put in place until April or May. Analysts said there could be a squeeze in allowances in the short term that could drive up prices next year.
But over the long run, they said, the market is likely to be oversupplied with carbon allowances through 2020, when the current phase of the Emissions Trading System is set to expire.
nytimes.com
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