European Parliament committee fails to agree on carbon reform date

[January 22, 2015] By Barbara Lewis and Susanna Twidale

BRUSSELS/LONDON (Reuters) - A European Parliament committee, in a surprise about-turn, rejected on Thursday a previous vote to begin carbon market reforms in 2021, clearing the way for another body next month to back action to prop up the EU Emissions Trading System (ETS).

To try to bolster carbon prices and spur industry to switch to greener energy, the EU's executive European Commission has proposed a plan to remove hundreds of millions of surplus carbon allowances (EUAs) from the market from 2021.

Member states Britain and Germany, which back zero-carbon generation from nuclear or renewable power, have led calls to begin action by 2017. Utilities such as E.ON, seeking support for investment, also want prompt action.

Poland, dependent on carbon-heavy coal, and energy-intensive industry say the Commission proposal of 2021 is soon enough.

The divisions are echoed in the European Parliament.

In the first of a series of votes, the industry committee initially rejected an amendment to begin reform in 2017 by a margin of two votes. They then backed 2021, by a margin of one ballot.

But some politicians said the margin was so narrow as to be unconvincing and following a brief adjournment, the committee rejected the session's votes.

The confusion knocked prices on the EU ETS lower. The benchmark EUA price fell as much as 5.5 percent to 7.00 euros after the voting. It later recovered to 7.15 euros, down around 3.5 percent.

Prices fell because there had been expectations of clear backing for a 2017 date, one trader said on condition of anonymity, but he predicted the market would recover because "2017 is still on the table".

Antonio Tajani, a vice president in the European Parliament and former European commissioner for industry, had tried and failed to get agreement on a compromise date of 2019.

He said the industry committee's failure to adopt a position meant the Commission's proposal, which he described as a balance between the needs of industry and climate policy, stood.

But other politicians said it looked more likely than ever that the environment committee next month would overwhelmingly back 2017 and it was remarkable that even the relatively conservative industry committee had failed to agree on 2021.

Oversupply of ETS carbon allowances and demand slackened by weak economic growth across Europe have created a glut of more than 2 billion permits, meaning the system is no longer effective as the EU's prime tool for cutting carbon emissions.

Once any agreement has been reached on reform, which needs approval from a plenary session of parliament and from member states, removed carbon allowances would be placed in a Market Stability Reserve and returned to circulation if demand rises.

(Reporting by Barbara Lewis and Susanna Twidale; Editing by Jason Neely and Dale Hudson)

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