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08/03/2015

Good reasons for supporting backloading

Next Wednesday, 3 July, the European Parliament will vote on another draft amendment to the EU Emissions Trading Directive drafted by the Commission

Next Wednesday, 3 July, the European Parliament will vote on another draft amendment to the EU Emissions Trading Directive drafted by the Commission; this amendment will serve to postpone the auction of a certain amount of Phase III rights with regard to the date set initially. This is known as “backloading”. Backloading

Following a first, failed attempt on 16 April, the Parliament is now set to evaluate the proposal—less ambitious and more limited in scope—that was drafted and green-lighted last week by the Parliament’s Environment Committee, and which would be the most direct route towards maintaining the price and market, reducing the supply for the time being until such time as the awaited structural reforms (more far-reaching) are finally sorted out. The Commission has already compiled a report  on the state of the European carbon market; the document presents a range of possible structural reforms and opens the door to a public consultation process to evaluate them.

Although the ceiling for emissions for the period 2008-2012 (ETS II) was an ambitious one, the current crisis ravaging Europe has led to an over-supply of emissions rights in the market, leading, in turn, to falling prices. At the end of 2012 the accumulated over-supply of rights that was passed on to Phase III amounted to more than 1800 metric tons. The fall in price of the European Union Allowance (EUA)—from the €20-€30 it stood at for most of 2008, to the current price of €4/mt—leads to doubts on the efficiency of a system that should be leading Europe towards a low-carbon economy, an industry that makes more efficient use of energy, and cleaner electricity. Carbon prices must inspire credibility, they need to send out a signal to investors; otherwise, the objective for which the ETS was originally designed will not be met: emissions reductions must be permanent, Europe has no time or use for occasional price falls that come in response to specific, one-off circumstances. The fall in price also affects the income expected by governments and which they intend to plough back into the auctions as part of their efforts to combat climate change.

So it is important for Spain to support backloading: abstention en masse by Euro-MPs would amount to, technically, a vote against, and one that would tip the scales negatively. Europe needs backloading and, once the latter has been approved, Europe needs to start reforming the design of the system and ensure that this situation never arises again, putting Europe well and truly on the road towards the ambitious goals laid down in the Roadmap to 2050, and which we must commit to if we are to get our economy back on the path towards development.

 

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