The European Parliament’s Environment Committee has backed a reform of the European Union’s emissions trading scheme (ETS) through a vote taken on Tuesday.
However the EDI, which represents energy intensive industries in Germany has expressed its dismay at the vote.
The ETS is central to the EU’s efforts to tackle climate change, but has been suffering from chronically low prices that are insufficient to drive low-carbon investments.
To fix the market, the European Commission had proposed reforms starting in 2021, designed to reduce a surplus of two billion carbon credits on the market which have caused low prices.
Today’s parliamentary vote backs earlier implementation of the reforms, starting in 2018, and contains additional measures to tackle surplus allowances.
EID chairman Utz Tillman was unequivocal in his criticism of the the Environment Committee of the European Parliament for the introduction of the market stability reserve (MSR) for 2018 in European emission trading.
The commission proposed the MSR to remove surplus credits from the market at set trigger points. This is designed to reduce price volatility and help push market participants onto a more cost-effective decarbonisation pathway.
In an email statement to Power Engineering International, he said the MSR is neither reconcilable with emission trading nor conducive to climate protection.
“The market stability reserve is a setback for the political acceptance of emission trading in Europe and for investments. The MSR is not what its name suggests. This step makes a functioning market for allowances in Europe unpredictable and could cause high costs for energy-intensive companies, which are impacted the most.”
As the MSR brings an increase in allowance prices and, consequently, also in electricity prices, the German EID sectors (construction materials, chemistry, glass, non-ferrous metals, paper and steel) could be faced with extra costs of EUR4.6bn per annum.
According to Tillmann, industry highlighted the cost problem in the discussion but this issue was not given enough attention. He thinks that the Environment Committee’s decision shows compromise but does not solve the cost problem.
EID spokesman Klaus Windhagen (director-general of the German Pulp and Paper Association/VDP) emphasised that the market stability reserve is unnecessary for climate protection.
“The climate goals of the European Union are fully achieved without the MSR. Another market intervention is only meant to drive up allowance prices. We fear an even stronger trend among companies to invest outside Europe, due to the lack of reliability in European energy and climate policy,” he said.
The EID also stated that companies should continue to receive full compensation for higher electricity prices. They maintain that otherwise there is a growing risk of production relocations to sites outside the European Union.
Tillmann pointed out that in its draft paper for the Energy Union, the EU Commission set the course for the future and urged EU institutions to strengthen the competitiveness of energy-intensive industries.
“One day before the Commission wants to present the Energy Union, the Parliament takes measures that put at risk our competitiveness. This simply makes no sense, and the Commission needs to respond to this.
Analysts say the reforms could see EU carbon prices more than double by 2020, to between €17 and €35 per tonne. Member states must still back any reforms to the ETS, however.
The commission said the reserve should start in 2021. Here’s how it would work:
· If the surplus of credits exceeds a trigger point of 833 million allowances, 12 per cent of the surplus is put into a ‘reserve’ – basically, a central bank for carbon credits.
· If the surplus drops below 400 million, the reserve puts 100 million credits back into the market at the next auction.
Britain’s main industry body does not appear to share the same sense of alarm about the reserve. Michelle Hubert, CBI Head of Energy and Climate Change, told Power Engineering International: “The Market Stability Reserve will be an important tool to give the EU ETS the capability to respond to future economic developments. In order to achieve holistic and long-lasting reform, we now need to see the right support for those industries that are facing competitiveness challenges within the EU.”
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