EU carbon market reform unlikely – report

There will be no short term reform of the EU carbon market due to opposition within the EU Parliament, according to analysts from Thomson Reuters Point Carbon.

The firm now believes it is unlikely that the plans to withhold 900m carbon credits in order to boost the flagging price and address an oversupply of credits, will come to pass.

A European Parliament vote on April 16 rejected the so-called backloading proposal by 334-315 with the legislation sent back to the Environment committee for tweaking. A new vote could be held as early as June.

“While there remains the possibility that the proposal may come back to plenary for a new vote before summer, it remains unlikely that backloading will ever be implemented,” said Hæge Fjellheim, analyst at Point Carbon.

Point Carbon has cut its price forecast on the cost to emit a tonne of CO2 45% (Source: Flickr/waldopics)

“It’s hard to see what Matthias Groote, the Environment committee chair, can do to the proposal to persuade the ‘No’ MEPs to change their mind given the stalemate in the debate,” said Marcus Ferdinand, analyst at Point Carbon.

Following a successful vote the plan would need to be accepted by qualified majority at the European Council where votes are weighted by size. Germany is keen to sit on the fence at the council with both members of its ruling coalition pulling it in opposite directions.

“The only game changer would be if Germany decided on a position in Council, but there is nothing that leads us to believe this would happen before the German elections in September.

“Timing is key for backloading, so any further delays at this stage in the process would render the whole measure irrelevant,” added Ferdinand.

Point Carbon has revised its carbon prices down 45% for the third phase of the scheme, which started this year runs until 2020. It predicts a price of €3 per tonne in 2013 and an average €6 through the full term of the phase.

The low prices are attributed to the schemes inability to adapt to the economic downturn that cut industrial output and the demand for carbon allowances.

Weaker than anticipated climate change targets also means the total cap on emissions is higher that it would have been otherwise.

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