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European Parliament adopts draft reform of carbon market

European Parliament adopts draft reform of carbon market

The European Parliament on Wednesday (15 February) adopted draft reforms of the EU’s carbon market post-2020 that aim to balance greater cuts in greenhouse gases with protection for energy-intensive industries.

The European Union’s emission trading system (ETS), a cap-and-trade permit system to regulate industry pollution, has suffered from excess supply since the financial crisis, depressing its prices and heightening the need for reform.

But politicians and EU nations are divided over how best to fix the complex system, with industry and environment groups lobbying hard on opposing sides.

Reform efforts have also been overshadowed by Britain’s decision to quit the bloc, raising fears it would also leave the EU’s scheme, hammering prices.

The draft, adopted by 379-263 votes, rejected a more environmentally ambitious proposal for the faster removal of surplus carbon permits from the ETS – sparking criticism from climate campaigners.

Instead, it sticks with the EU executive’s proposal for the cap on emissions to fall by 2.2% per year – the so-called linear reduction factor – until at least 2024.

The Climate Action Network said it “betrayed the spirit” of the Paris accord to slow global warming, while Dutch green lawmaker Bas Eickhout said provisions to protect industry showed “the lobbyists have won out in the end.”

The Paris Agreement caps global warming at no more than two degrees above industrial levels.

But leading policymakers called it the best compromise possible in tough talks. EU lawmakers will now enter negotiations with representatives of the bloc’s 28 governments to hammer out the final legislation.

“I am delighted that the European Parliament has endorsed these reforms.  This agreement puts us on course to achieving our Paris Agreement obligations and sends a strong signal to the European Council that we are serious about tackling climate change,” said Ian Duncan, a UK Conservative and lead MEP on the bill.

The benchmark European carbon contract fell by about 2% following the vote, hovering around €5 a tonne, but Thomson Reuters carbon analysts said the market reaction would be short-lived.

“The Parliament position significantly tightens the market balance,” said Hege Fjellheim, an analyst at Thomson Reuters.

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