In a 334-315 vote, with more than 60 abstentions, lawmakers rejected a proposal to postpone — or backload — the auctioning of 900 million EU Emissions Trading Scheme allowances from the years 2013-2015 to 2019-2020. This measure was intended to rebalance supply and demand, and reduce price volatility.
European commissioner for climate action Connie Hedegaard said the plan will now go back to the Parliament’s environment committee for further consideration.
Following the vote, EU carbon permits plunged 43 percent to €2.63 ($3.44) a metric ton before recovering slightly to €2.93 ($3.83) by 1049 GMT, Reuters reports. The news agency says German power prices fell 3 percent to €39.60 ($51.77) per MWh.
The EU ETS, the largest global carbon market, has been plagued by the falling price of carbon permits for years. The ETS saw the estimated carbon price drop 49 percent €5.82 ($7.61) per metric ton in 2012, down from €11.45 ($14.97) per metric ton in 2011. In the past five years, carbon prices on the ETS have plummeted nearly 90 percent.
The ETS gives and sells carbon allowances to factories and power plants to cover their emissions. This year, some countries including Germany and Greece began selling more than 40 percent of their allowances in auctions instead of giving them away for free, Bloomberg reported.
Analysts have cautioned about carbon prices in Europe inching closer to zero unless policymakers take action, either through backloading or some form of long-term structural change.
As of April 1, Britain’s carbon-emitting businesses pay significantly more for energy than their European counterparts under the UK’s new carbon price floor. The emissions tax, set by the UK government in 2011, starts at £16 ($24.30) per ton of carbon emitted this year and rises to £30 ($45.63) by 2020.
The UK’s high carbon price floor represents a threat to competitiveness for British companies, particularly in energy-intensive sectors, warns Richard Gledhill, partner PricewaterhouseCoopers sustainability and climate change.
Earlier this month, Gledhill said if the EU doesn’t boost carbon prices, the UK’s significantly higher carbon price floor will cause “carbon leakage,” driving heavy energy users out of the country.