LONDON — In a move to bolster the floundering European market for carbon offsets, the environmental committee of the European Parliament voted Tuesday to allow the European Commission to reduce the numbers of carbon permits that it auctions in the next three years.
Prices of carbon allowances, which permit companies to emit greenhouse gases, plunged below €3, or about $4, per ton last month, compared to around €30 per ton in 2008 and about €9 per ton a year ago.
Many analysts think that setting a hefty price on carbon will prove the most efficient way to reduce emissions. The European system is the world’s flagship program and its struggles could have negative implications for other countries that are considering similar efforts, including the United States.
The vote Tuesday, by an unexpectedly decisive 38 to 25 with two abstentions, is “a lifeline for the carbon market and for emissions trading as a policy tool for curbing emissions,” said Stig Schjoelset, head of carbon analysis at Reuters Point Carbon, a market research firm in Oslo. Mr. Schoelset added that if the vote had gone the other way, the system would have been “more or less dead.”
Although this vote is only a first step, politicians and analysts said it might allow the European Union program to begin recovering credibility with markets as a means to curb emissions.
“It is important that we get this right, and the sooner we get it right the better,” the E.U. climate action commissioner, Connie Hedegaard, said during an interview Monday.
Prices for carbon allowances on the Emissions Trading System, the world’s premier cap and trade program, fell to as low as €2.8 per metric ton last month. After the vote Tuesday prices were about €4.5 per ton, after closing at €5.13 per ton on Monday.
The proposal approved Tuesday would take 900 million carbon credits that were scheduled to be auctioned over 2013 to 2015 and “backload” them to 2019 and 2020 in order to put a floor under prices. It is estimated that there is now a surplus of 2 billion credits, so this move will not soak up all of the carbon allowance glut.
The changes will need to be approved later by the full Parliament and member states.
“It is really the first step in a long, long process,” said Kash Burchett, an analyst at IHS, an energy research firm.
The European Trading System was set up by the European Union to provide a signal to polluters like utilities and heavy manufacturers that they needed to reduce carbon emissions. Companies are either allocated or required to buy at auction enough credits to offset their annual emissions. The trouble is that with Europe’s dismal economy dampening industrial activity and energy use, there is now a huge surplus of allowances, or credits, depressing their price.
Industrialists and analysts say that single-digit prices do not provide the intended incentive for companies to switch to cleaner fuels and energy-efficient technology. Mr. Schoelset said that to encourage switching from coal to natural gas, a price of €30 to €40 per ton is needed, while an even higher level of perhaps €60 to €150 per ton is required for utilities to invest in expensive carbon–reducing technologies like carbon capture and storage.
“The vote signals the intention of the European Parliament to begin the process of restoring the most cost-effective approach to meeting Europe’s energy needs and reducing emissions over time,” David Hone, chief climate change adviser to the oil giant Royal Dutch Shell, said in a statement. “It will not immediately restore the system to good health, but it is a start.”
This article has been revised to reflect the following correction:
Correction: February 19, 2013
An earlier version of this article misidentified an analyst at IHT, an energy research firm. He is Kash Burchett, not Kass Burchett.
Article source: http://www.nytimes.com/2013/02/20/business/global/european-parliament-approves-plan-to-bolster-carbon-trading.html?partner=rss&emc=rss