Environment and energy ministers meeting in Dublin this week (22-24 April) were unable to agree on a signal of support for the European Union’s Emissions Trading Scheme (ETS), dashing the hopes of investors in the carbon market as well as of environmentalists and energy companies. 

There were hopes that strong support from member states could revive the European Commission’s proposal to save the system, after it was dealt a potentially lethal blow by the European Parliament last week. But the absence of a clear message from ministers has led to accusations and counter-accusations from MEPs and ministers about who should make the next move.

Because of domestic political considerations, Germany has been unable to take a decision on the Commission’s proposal. Without a decision from Germany, ministers meeting in Dublin were unable to give an indication that the proposal could pass in the Council of Ministers. A majority of member states support the proposal, but not enough to overcome a German abstention or rejection.

The Commission’s proposal to delay the allocation of 900 million ‘permits to pollute’ from 2013-15 to 2019-20, put forward in July, was intended as a quick fix to help the flagging price of carbon, which is hobbling the ETS. The economic slowdown combined with an over-allocation of free allowances has led to a glut of permits, which has sent the carbon price below €5 for the past few months – instead of the intended price of around €30. With such a low price, the system cannot reduce emissions or stimulate investment in low-carbon technologies, analysts warn. The low price may even be encouraging investment in coal-fired power plants.

Short-term solution

The Commission intended the ‘backloading’ proposal as a temporary measure while more long-term solutions are developed, and it was originally thought it would be in force by the end of 2012. But it has encountered unexpectedly strong resistance from energy-intensive industries, and from centre-right politicians who say it would be inappropriate to intervene in a market mechanism, and that a higher carbon price would raise energy costs for businesses and consumers during an economic downturn.

Last week (16 April) the proposal, which would insert one sentence into the ETS directive allowing the Commission to delay allowances, was rejected by the Parliament by just 19 votes. It was referred back to the Parliament’s environment committee, which has two months to make changes and put the proposal to a vote again. The rejection caused the carbon market to drop at its fastest rate ever, falling by over 40% to a record low of €2.46.

Members of the committee said on Monday (22 April) that only a signal of support from member states in Dublin would enable the proposal to be put to another vote. It was hoped that the risk of a complete collapse of the ETS would force the German government to come out with a statement of support, given that the ETS was a favourite project of German Chancellor Angela Merkel.

But German Environment Minister Peter Altmaier, who strongly supports the proposal, dampened these hopes on Monday when he said that Germany will probably not come out with a position until after the European Parliament votes again. “We should use the two-month delay we now have in the environment committee,” he told European Voice. “In the meantime, what we need is a public debate.”

Altmaier, from Merkel’s Christian Democratic Union (CDU) party, is locked in a battle with Economy Minister Philipp Rösler, from the Free Democratic Party, the CDU’s coalition partner, who is adamantly opposed. It is thought Merkel does not want to risk causing a rift in the coalition or angering heavy industry ahead of elections in September. Only a firm show of support from the European Parliament would give her the political cover to take a position, according to German government sources.

Point Carbon, a research firm that analyses the carbon market, cut its long-term forecast for the price of carbon by 45% because there was no signal from the ministers’ meeting.

Last week, Phil Hogan, Ireland’s environment minister, had asked the Commission not to withdraw the proposal in response to the Parliament’s vote, noting that member states had not yet made their positions known. This had raised hopes that a signal of support could be sent at the Dublin meeting. But yesterday Hogan said that the ball remains in the Parliament’s court.

“They have to act first,” he said. “The matter is for the European Parliament, not for the Council at the moment.” He said the Council needed to give the Parliament space to make a decision.

Members of the environment committee insist that a Council signal is needed before the Parliament can take a vote. “We need new dynamics in the Council in order to make sure that the environment committee in the end can…put the position of the Council back to the plenary and vote once more,” said Bas Eickhout, a Dutch Green MEP.

“What can the environment committee do?” asked Eickhout. “It’s a one-line change. Finding a compromise there is difficult. We need other dynamics in the other institutions.”

Member states will continue discussing the issue in the coming weeks at working group level, and it is set to be an item on the agenda at the environment council in Brussels on 18 June. But with the situation frozen until German elections, it appears increasingly unlikely that backloading can be resuscitated.