Market intervention

The European Parliament has responded to pressure from business leaders and environmentalists by voting in favor of intervention in Europe's emissions trading scheme (ETS), where the price of carbon has recently been languishing at record lows.

In a non-binding vote, the parliament's environment committee agreed to broad support for lowering the number of carbon emission allowances from 2013.

EU parliamentarians will need to vote again next year and member state governments are also required to debate the deal.

Dutch Greens MEP and committee member Bas Eickhout told Deutsche Welle that Tuesday's agreement was a strong signal to the EU's executive and "the signal that markets had been waiting for, too."

European carbon prices jumped 30 percent almost immediately after the vote.

'Governments are waking up'

"Government's have only just started to realize how much money they are losing," said Sanjeev Kumar, senior associate at the environmental think tank E3G, in an interview with Deutsche Welle.

"Germany, the UK, and to a lesser extent Sweden, France and Italy have all been losing money," he said.

E3G was one of 15 companies and lobby groups, including Dong Energy, Alstom, and Shell, that issued a joint statement at the weekend calling for intervention in the ETS.

If the plan passes the second vote next year, 15 percent of carbon allowances, around 1.4 billion, will be withheld starting in 2013.

"I wouldn't be surprised if the figure is raised to 2.5 billion relatively soon," said Kumar, "it's only a matter of time."

Cash crisis strikes again

Still struggling with the EU debt crisis, some governments have been accused of awarding too many carbon allowances to companies to help stimulate business.

Europe's ETS, which incorporates allowances, international offset credits, and direct trading, is seen as the bloc's central mechanism for reducing carbon emissions and encouraging investment in green energy technology.

For the system to work, experts say the price of carbon needs to rest between 20 and 50 euros (US$26-65) per ton. This year the price of carbon has been languishing, reaching a record low at one point last week of 6.30 euros. Experts blame an excess of carbon allowances for the low prices.

Cutting - or withholding - allowances is seen as one of the fastest ways to raise the price of carbon and provide the incentive for business to invest in a green future, rather than taking the cheaper option of relying on carbon-intensive activities when the price is low.

Dietrich Borst from the German Emissions Trading Association (BEVK) said Tuesday's agreement to withhold 15 percent of permits was "not enough."

"What we should be doing is cancelling allowances completely for a full year."

Confident for now

Dutch MEP Bas Eickhout admits the agreement stops short of "fundamental change," but insists it is an important political signal.

"The ball is now in the Commission's court," said Eickhout. "But we have broad support for the agreement and narrow support for an amendment I put forward to have the 1.4 billion allowances dropped completely [at a later date]".

"Half a year ago it was impossible to address ETS reform, but politicians woke up when the price of carbon crashed - so I am confident of next year."

Next year is predicted to be even tougher economically for the eurozone.

In this context, EU member states may be tempted to award more carbon permits in a bid to spur their economies.

"This is less a discussion about the environment and more about finance," said Kumar.

"The crisis has had an important impact and the way to get out of the crisis is to invest in employment-heavy and energy-efficient industries, but we had to win this first argument to get the idea of intervention on the agenda at all."

Author: Zulfikar Abbany
Editor: Nathan Witkop