European Parliament Revives Hopes for Cap-and-Trade

After a failed attempt in April, the European Parliament succeeded in passing a measure early in July to address the low price of the EU’s emissions trading system. Emissions prices in the $72 billion cap-and-trade program had lost more than 70 percent in the past four years. The low price of Europe’s carbon market is attributable to the prolonged recession of 2008 and the glut of permits that cut the price to as low as about 2.75 euros a ton.

Europe's carbon markets are essential to the continent's strategy to reduce GHGs and combat climate change. Cap-and-trade systems gradually make polluting more expensive thereby using market forces to drive the adoption of greener technologies and the reduction in carbon emissions.

Some of those who voted no in April changed their minds due to an amendment ensuring that the intervention was a one time deal and by a planned study of the dangers of businesses leaving the EU to avoid the higher permit price.

The final vote was close at 344 to 311 (with 46 abstentions). The news had a positive impact on the value of carbon credits, rising 9 percent (4.70 euros, or $6.13, per ton).

Prices are being buoyed by delaying the auctioning of some carbon allowances. The measure passed despite the concerns of Poland, the Czech Republic and others. These nations are worried about the schemes impact on coal fired energy and other industries. Others did not want to see interference in the market system. At the end most realized that something had to be done to "stop the bleeding" as Connie Hedegaard, the European Union’s commissioner for climate action put it.

Hurdles remain if the cap-and-trade scheme is to move forward, this includes the positions of national governments like Germany which will be voting in elections on September 22. Peter Liese, a German Christian Democrat member of the Parliament, said,“It’ll go very fast after the German elections.”

In the longer term we will also need to see higher carbon credit prices if the program is to be effective. However, the EU's action in July is a good start towards renewing the continent's emissions trading scheme.

As a model emulated around the world, the success of the EU's carbon trading system is crucial.

© 2013, Richard Matthews. All rights reserved.

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