EU Parliament Approves Backloading Fix To Cap And Trade Market

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Big news for global carbon markets today, as the European Parliament voted to approve a “backloading” plan to reduce the glut of unsold carbon allowances in the EU’s Emissions Trading System (ETS).

The backloading measure passed by a 344 to 311 vote, and temporarily postpones the auction of 900 million allowances in the ETS. This action will nearly cut in half the glut of 2 billion allowances that have driven permit prices to record lows, and once again reminds the world that low EU allowance prices won’t kill cap and trade.

The vote provided an immediate boost to the ETS market. Bloomberg reports allowances jumped 9.3% today, the biggest single gain in months, closing at $6.10 per ton.

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Backloading Now For Long Term Cap And Trade Fixes

Even though this backloading deal includes several concessions, including assurances the move won’t be repeated and plans to address relocation of energy-intensive firms outside of the EU to avoid buying carbon allowances, the vote is being hailed as a victory for emissions reduction policy and a stepping-stone toward long-term system reform.

“This positive vote now gives the EU ETS breathing space for more profound supply side reforms to be enacted that will prevent the need for another backloading debate,” said Miles Austin of The Climate Markets and Investment Association.

The backloading measure now moves onto the European Council before it can officially take effect. While several countries, including coal-dependent Poland, have stated their opposition to the allowance retirement, it may already have enough momentum to overcome critics, who defeated the first backloading vote in April.

Wide Support For Permanent ETS Reform

Energy and environment ministers from 12 EU member states recently submitted an open letter co-signed by a coalition 42 major businesses calling for backloading approval and long-term structural reforms by the end of 2013.

Representatives from the EU Parliament will begin negotiations with member states to agree on wording of a final legislative measure before heading back to parliament for a binding vote. Stakes are high for the proposal, as the future of many other national carbon markets could hinge on the EU’s decision.

“Across all continents, Europe’s experience of a market-based system for reducting CO2 emissions is being considered, and seen as a credible option, most recently in China,” said Matthias Groote of the EU. “We shall not let the ETS be a victim of short-term concerns.”