European Parliament's Environment committee backs emissions trading 'backloading'

Environmental law expert Eluned Watson of Pinsent Masons, the law firm behind Out-Law.com, said that the influential vote was "good news" provided that the European Commission acted quickly on more fundamental reforms to the scheme. The plans were previously rejected by an industry committee following a non-binding vote last month.

"The environment committee has sent a clear signal in favour of a strong and healthy emissions trading system," said committee chair Matthias Groote shortly after the vote. "A stronger carbon price will help catalyse Europe's transition towards a low-carbon economy."

"Creating the EU ETS was a landmark achievement but there is also a learning process. Delaying auctions is only a temporary fix, but it is a positive step," he said.

The committee will vote on whether further negotiations should take place with the leaders of member states later this month, before a full Parliamentary vote on the proposals takes place in April.

The European Commission's proposals would see 900 million allowances that would otherwise have been made available for auction between 2013 and 2015 under the third phase of the EU ETS transferred to later in the same period. By doing this, the Commission hopes to address the build-up in allowances caused by reduced industrial activity during the economic downturn.

The EU ETS was established  in 2005 and was the first major emissions trading scheme in the world. Phase 3 began on 1 January 2013 and runs until 2020. Under the scheme, greenhouse gas (GHG) emissions from prescribed energy intensive installations including factories and power stations are capped and installations must purchase allowances, called European Union Allowances (EUAs) to emit or discharge a specific volume of emissions in line with national allocation plans.

Operators of installations must hold EUAs equal to, or more than, total emissions at the end of the EU ETS year and those with excess allowances can 'bank' them or trade with those who need to buy more allowances to comply with emissions limits.

The price of allowances rose to just under €5 per tonne on Wednesday according to Thomson Reuters Point Carbon. The price remains well below a historical average of €30 per tonne.

Environmental law expert Eluned Watson said previously that the dramatic drop in the carbon price in recent months "reinforced the fact that urgent action is required, backed by clear legislative support, to structurally reform the EU ETS and to rebalance the supply and demand of allowances" in the market.

"Although the backloading proposal is very much a 'quick fix', reactionary measure, it is clear that longer term structural reform will take time, with changes unlikely to be in place until 2017 at the earliest," she said. "It is hoped that this will not be too late and that the EU ETS remains an effective mechanism to promote the reductions of greenhouse gas emissions and to drive investment in a wide range of low carbon technologies."

In its first report on the carbon market (12-page / 225KB PDF), published at the end of last year, the Commission proposed six longer-term structural changes to the scheme. These could include increasing the EU's carbon reduction target from the current 20% to 30% by 2020, the permanent cancellation of a number of allowances or extending the scheme to cover additional sectors.