European Lawmakers to Vote on Tougher Carbon Measure

LONDON — Efforts to put some bite into Europe’s toothless market for carbon-emission permits face a crucial vote Tuesday in the European Parliament.

Lawmakers will decide whether to let the European Commission take steps that would probably raise the price of emissions credits. At the current prices, polluters have little incentive to clean up their smokestacks.

The vote “is incredibly important,” said Anthony Hobley, head of the climate change practice at the law firm Norton Rose in London. “If it doesn’t go through it would send a very negative signal.”

Carbon emission permits are essentially licenses to release greenhouse gases — the emissions that scientists have linked to global warming. Lawmakers are considering a measure aimed at raising the price of those licenses. Permits are priced in units that allow the holders to emit a ton of greenhouse gases. Because a big user of coal-burning power plants might release millions of tons of greenhouse gases a year, the higher the prices for the permits, the higher the cost for polluting.

But the prices of these allowances, which are traded by manufacturers and financial institutions, have plummeted to about €5 a ton, compared with €7 a ton a year ago and around €25 per ton in 2008.

The European Union introduced its cap and trade program, known as the E.U. Emissions Trading System, in 2005, hoping to force utilities and manufacturers to reduce emissions and put money into low carbon technologies. But prices have dropped to a point at which they are too low to have much influence on investment decisions.

“At the moment the carbon price does not give any signal for investment,” Hans Bünting, chief executive at RWE, one of Germany’s largest utilities, said in a telephone interview. European investment in clean energy fell 25 percent in the first quarter this year from the first quarter of 2012, according to Bloomberg New Energy Finance, a market research group.

Under the European Trading System, companies are allocated permits or can buy them at auction, with each permit allowing for the emission of one ton of carbon dioxide each year. Companies that exceeded their permitted amount would risk heavy fines.

As the system was originally planned, the number of permits available was supposed to be gradually reduced, forcing emissions downward. Permits were also intended to be increasingly sold by auction to polluters rather than granted as allocations.

But persistent economic problems have sharply reduced both power generation and manufacturing, leading to a glut of carbon allowances. Last year, for instance, ArcelorMittal, the Luxembourg-based company that is the world’s biggest steel maker, had 86.9 million tons worth of allowances, but wound up selling about 22 million tons worth for $220 million because it did not produce enough to need them.

The glut of allowances on the market, estimated at about two billion tons, has brought the carbon price down to a level so low that it does little to deter pollution.

With the price of carbon permits so low, European power companies have been burning coal, which is cheap but a big source of emissions, while mothballing gas-fired plants, which are much cleaner. The use of coal for power generation in Britain increased last year by 31.5 percent, while gas use dropped by about 32 percent, according to the government.

A main reason coal is inexpensive in Europe is because it is being spurned by U.S. utilities, which are cashing in on the boom in low-cost shale gas.

Stig Scholset, an analyst at Thomson Reuters Point Carbon, a market research group in Oslo, said that prices of €35 to €40 were needed to encourage electricity generators to switch from coal to gas. Europe is likely to meet its goal of reducing emissions by 20 percent from 1990 levels by 2020, but that will largely be a result of reduced economic activity.

Article source: http://www.nytimes.com/2013/04/16/business/global/european-lawmakers-to-vote-on-tougher-carbon-measure.html?partner=rss&emc=rss