Deal on ETS ‘backloading’

One year later than intended, Council and Parliament approve plan to raise the price of carbon.

MEPs and member states have agreed to authorise the European Commission to delay the auctioning of 900 million emissions allowances in the next period of the EU’s emissions trading scheme (ETS). The agreement was endorsed by member states this morning (20 November).

The proposal was put forward over a year ago but was stalled because of a row between Germany’s environment and economy ministers. The European Parliament voted to reject the proposal in April but reversed that position when it voted again in July.

But the proposal needed German support to move forward in the Council of Ministers, and this was not possible because of the strong opposition of Philipp Rösler, then Germany’s economy minister. Rösler lost his cabinet position after a disastrous showing by his liberal FDP in September’s general election. The FDP, which was the junior partner in the coalition government, fell short of the 5% threshold required to enter the Bundestag. German Chancellor Angela Merkel is now in coalition talks with the Social Democrats, who support the backloading proposal.

The position agreed by MEPs and member states will require a prior impact assessment of the risks of carbon leakage for some industrial sectors. Such an authorisation can take place only once, in exceptional circumstances and during the third ETS trading period, which begins in 2013, and only for a maximum number of 900m allowances.

The text must still be formally approved by the Parliament, which is likely to happen during the December plenary session. The text will give the Commission the ability to intervene in the carbon market, but the Commission will then have to come up with a new plan for the backloading because the original timetable was adopted a year ago.

The backloading proposal is likely to slightly raise the flagging price of carbon, which was expected to be around €30 at this point but is instead at €5. The Commission is likely to come out with a proposal for long-term structural changes to the ETS in January. The structural changes are unlikely to be approved before the end of this Parliament in April 2014.