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 Thursday's vote, one of several legislative stages, will be closely
watched by traders.
The Emissions Trading System (ETS) is designed to make polluters pay
for their emissions but a surplus of more than 2 billion carbon
allowances generated by economic crisis has crushed the market.
That means industry can still burn highly polluting fuel, such as
coal, at little cost as permits are worth only around 7 euros per
tonne.
Before new rules can enter the statute books, Thursday's vote in the
European Parliament's industry committee must be followed by another
next month in the environment committee, then a plenary
parliamentary vote and endorsement from the 28 EU states.
The European Commission, the EU executive, last year proposed
putting hundreds of millions of ETS allowances in a Market Stability
Reserve (MSR) starting from 2021.
Member states Germany and Britain, however, which want to boost zero
carbon power generation, say 2021 is too late and have led the push
to get the MSR in place for 2017. Big utilities including Germany's
E.ON also support early action.
"All efforts must be made to have the proposed market stability
reserve running already by 2017," a German government paper
circulated by diplomats in Brussels says.
Energy intensive industry and nations such as Poland whose economy
relies on coal are likely to oppose that.
The price of carbon permits rose last week after a vice president
leading parliamentary negotiations said he had secured a deal in the
main political grouping, the European People's Party, for 2019.
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The market took that as a sign that the full parliament will endorse
carbon market reform earlier than the Commission has proposed.
Parliamentary sources said lobbying would be intense ahead of each
vote, making the individual outcomes hard to predict.
But they anticipated the industry committee would narrowly back 2019
and the environment committee would overwhelmingly support 2017.
"If the earlier start date (2017) wins and there is agreement to
transfer backloaded (removed) permits straight into the reserve,
then I would expect a significant price hike," one trader said,
speaking on condition of anonymity.
But as the market had already priced in a start before 2021, support
for 2019 might have little impact.
(editing by John Stonestreet)
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