The European Parliament has voted against propping up the EU’s emissions trading scheme in a move that sent prices plunging to new lows in the world’s biggest carbon market.
In what some analysts fear will be a significant setback for global efforts to tackle climate change by putting a price on carbon emissions, members of parliament voted 334-315 on Tuesday against a measure known as “backloading”. This would have temporarily removed some 900m allowances from the over-supplied emissions trading system.
The EU carbon price fell more than 40 per cent to a new record low of €2.63 a tonne as news of the result filtered out.
Carbon industry figures said they were deeply disappointed by the result.
“The carbon market in Europe has suffered a real blow today,” said Baroness Worthington, founder of the Sandbag carbon market monitoring group.
“It seems certain that in the short term the EU will miss out on much-needed investment in increased industrial efficiency and the low carbon economy at precisely the time when other countries such as China and the US are starting to catch up.”
Miles Austin, executive director of the Climate Markets & Investors Association, said: “The consequences of MEPs voting against backloading will undoubtedly be rapidly reflected in the EUA price over the coming days, this solely lies at the feet of parliament.”
Ahead of the vote, the International Energy Agency warned failure to approve the backloading measure for one of Europe’s flagship environmental policies would reverberate around the world.
Dr Fatih Birol, IEA chief economist, said it was “extremely important” that the measure passed.
“It is important not only for Europe, but also for the global fight against climate change,” he said in an interview with the Financial Times.
Mr Birol said: “Europe is the region that started this endeavour, which the world, perhaps with some modifications, has to follow. If we say that this exercise didn’t work out, this would be a loss not only for Europe but for everybody.”
The emissions trading scheme, launched in 2005, is the cornerstone of the EU’s policy to reduce greenhouse gas emissions. By putting a price on carbon and forcing companies to pay for their annual pollution, the market was expected to unleash investment in cleaner technologies.
Yet with prices languishing at less than €5 per tonne – because of a glut of the carbon allowances that allow companies to pollute without penalty – it risks instead becoming an embarrassing EU policy failure.
The backloading plan from the European Commission, the EU’s executive arm, sought to prop up prices by postponing the auctioning of 900m allowances until later in the current trading period.
The parliament’s industry and environment committees have been divided on it over the past month, along with business and industry groups.