On Tuesday, 16 April, the European Parliament rejected the Commission’s claim to a legal right to intervene in the EU’s carbon market. The European Commission wants to use a mechanism of ‘backloading’ allowances to elevate the carbon trading price. The vote went to a narrow majority (315 in favour; 334 against, with 60 abstentions), and a confession of some ‘voting in the wrong lobby’ has emerged, but nevertheless it leaves the EU Emissions Trading Scheme (ETS) in disarray, according to Thomson Reuters Point Carbon, the energy market intelligence provider and analyst.

"We believe that backloading is now politically dead and it is very unlikely that any political intervention in the scheme will be agreed during the third phase (2013-2020), said Stig Schjølset, Head of EU Carbon Analysis at Thomson Reuters Point Carbon.

Right: EUA spot price, Euros, March to April 2013. Source – Thomson Reuters Point Carbon

Schjølset added that carbon prices within the EU ETS would be hit hard by the vote long term. "We do not envisage prices rising much above the current €3 mark and they may well drop lower at least until the end of the third phase".

Schjølset concluded; "The focus will now shift towards structural, more long-term oriented measures but certainly this vote makes the EU ETS irrelevant as an emissions reduction tool for many years to come".

The plans will now return to the Environmental Committee for tinkering ahead of a possible new vote but the consensus appears to be that the next proposed changes will involve structural alterations.

Connie Hedegaard, European Commissioner for Climate Action and the main architect of the backloading measure, said: "The Commission of course regrets that the European Parliament has not approved the back-loading proposal. However, it is worth noting than when it was suggested in the second vote that the Parliament finalised its rejection right away, this was not supported. The proposal will now go back to the Parliament’s Environment Committee for further consideration."

"This vote in the European Parliament will lead directly to a major jump in emissions from coal burning across the continent," said Joss Garman of Greenpeace UK. Eurelectric commented that the ‘no’ vote was "a dangerous setback for the internal energy market and EU carbon goals". Hans ten Berge, secretary-general of Eurelectric said: "Only urgent action by the Commission to put forward structural proposals on ETS can now stop Member States from each legislating their own alternative policies: 27 different carbon floor prices, coal taxes, carbon taxes.

But not everyone regrets its passing in its present form. Sam Van den plas, climate policy officer, WWF-Brussels, commented:
"After broad agreement that backloading alone would not solve the fundamental problems faced by the ETS, EU lawmakers need to get rid of the surplus toxic tonnes hanging like a dark shadow over the carbon market. In addition, the EU should stop handing out free allowances to a large majority of EU manufacturing industries since current carbon prices do not justify such gifts."

"We remain convinced of the need to firmly establish the ETS as the main policy instrument for driving investment choice in CO2 reduction. An early revision of the ETS annual linear reduction factor in the region of 2.3%, in line with a firm, economy-wide 2030 CO2 reduction target, is the best means of achieving this objective."

Backloading, proposed by the European Commission as a short-term solution to the oversupply in the market, is the temporary withholding of carbon emission allowances due to come to market between 2013-2015. The current oversupply in the carbon has meant that the global markets’ overall value was down last year, for the first time since the EU’s Emissions Trading Scheme, a cap and trade mechanism, was launched in 2005, as the global market value fell from €96bn in 2011 to €62bn.
The effect has been caused by market surplus, leading to a meltdown of prices. The estimated average global carbon price dropped by 49% to €5.82/t last year, down from €11.45/t in 2011 and €13.09/t in 2010.