LONDON — Europe’s program to halt climate change is in disarray with lawmakers in the region expressing concern the drift is undermining the planet’s most significant effort to combat global warming.
Members of the European Parliament’s environment committee meet today for a second time to revive a plan the full assembly rejected that would have boosted the cost of greenhouse-gas emissions. The rebuff left the cost of pollution near a record low, leaving companies with less incentive to reduce emissions.
The situation “reflects a sea-change against climate policy,” said European Green Party Co-Chair Reinhard Buetikofer, who supported the plan. The effort to limit carbon gases “is not being perceived as an opportunity by industry but rather a burden,” he said, adding that the decision “destroyed the foundation of common European climate policy.”
With a recession in the countries sharing the euro in its second year, efforts to clean up the environment and spur renewables are taking a back seat to programs that bail out the most indebted countries and put people back to work. They herald a wider struggle to set new climate protection and renewable energy policies, and threaten to keep prices near historic lows in the Emissions Trading System, or ETS.
The region’s recession crimped manufacturing output, reducing pollution in the process. The EU’s failure to mop up surplus permits sent prices lower.
Lower carbon prices help power generators that use a greater share of coal, since burning coal emits about twice as much carbon dioxide as natural gas. Utilities such as RWE AG in Essen, Germany, and Warsaw-based PGE SA benefit over those that derive energy mostly from wind, natural gas and uranium, including Germany’s EON SE, France’s GDF Suez SA and CEZ AS in Prague. All have been hurt by a drop in power prices stemming from the economic slump.
“With a carbon price of nil, coal is by far the most attractive option,” said Chris Davies, a U.K. member of the assembly’s environment committee. “One of the purposes of the ETS was to give long-term direction to investors. With climate policy seen to be in disarray, there is no such direction.”
Companies need a stable carbon price on which to base investment decisions, said GDF Suez Chief Executive Officer Gerard Mestrallet. “We have to re-establish a carbon signal,” he told reporters on May 2. “Coal is being chosen ahead of gas, so gas plants are being stopped. It’s an enormous problem.”
EON CEO Johannes Teyssen said at the company’s annual meeting in Essen on May 3 that lawmakers have made the emissions system “shrivel” and that the vote was “a black day for efficient climate protection.” A company spokesman said it would hurt margins for generating power from gas.
The cost of carbon dioxide credits on the European Union emissions trading system fell from an all-time high of 31 euros a metric ton in April 2006 to 3.81 euros on the ICE Future Europe exchange as of 12:05 p.m. in London today. Utilities that have a stock of carbon credits, such as Spain’s Endesa SA, may have to write down their value, said Jose Martin-Vivas, a utilities analyst for Mirabaud Securities in Madrid.
The proposal to temporarily cut the oversupply of allowances divided EU governments, Parliament and industry. While nations led by France, Denmark and the U.K. backed the fix, Poland, Greece and Cyprus were among those opposing it, saying it would raise energy prices and might amount to market manipulation.
Lawmakers sent the plan, known as backloading because it delays auctions for new credits, back to the committee for more talks. Legislators on the panel are scheduled to meet today and tomorrow. They have until mid-June to recommend a solution on the market fix to the full assembly. Climate experts from the EU’s 27 governments convene on May 27 to discuss a solution.
Buetikofer said the measure was weighed down by German Chancellor Angela Merkel’s failure to speak in favor of it. On May 3, the chancellor said she supported backloading while indicating the coalition government doesn’t have a unified position on the matter yet. They were her first comments on the subject. Speaking at a climate conference in Berlin today, Merkel said carbon permits prices are lower than assumed because of the economic slump.
“I personally say that if you develop a system for which projected growth rates are a key element, and the growth rates are totally different from what you projected, then the question whether one has to revise that can’t be a taboo,” she said.
Mired in sovereign-debt crises that’s forced five nations to take bailouts, the EU is trying to balance climate policies that raise electricity costs high enough to encourage renewables against the need to keep manufacturers competitive.
The bloc’s regulatory arm, the commission, says Europe needs new targets to cut greenhouse gases after current ones expire in 2020, and a renewable energy framework through 2030 to give investors clarity and prepare for a global climate deal.
“Backloading shows how difficult the reality is,” said Matthias Groote, chairman of the environment committee, who oversees the proposal in the assembly. “It’s 100 percent certain that it all makes the debate on 2030 targets more difficult.”
Parliamentarians on April 16 voted 334 to 315 for blocking the carbon market rescue.
“This is the first time I can remember when parliament has put economic survival and jobs ahead of green orthodoxy,” said Roger Helmer, a member of the U.K. Independence Party who has been in the parliament for 14 years and opposes emissions trading. “It marks an absolute watershed.”
Lobbyists including the BusinessEurope alliance of 41 industrial groups and Eurofer, which represents steelmakers, welcomed the vote, with Eurofer Director General Gordon Moffat saying “high carbon prices result in the deindustrialization of Europe.”
The ETS was founded in 2005 and is the cornerstone of EU climate policy, capping emissions from more than 11,000 power plants and factories owned by companies from RWE, the bloc’s biggest emitter, to brewer Carlsberg A/S and steelmaker ArcelorMittal. Polluters are issued permits representing a ton of carbon. If their pollution exceeds their cap, they must buy permits from companies which undershoot.
With the EU system accounting for 89 percent of the $61 billion market worldwide, Australia, China, South Korea and California are among countries and regions planning or starting up their own emissions trading programs.
“At the very time that we’re failing to make our emissions trading policy work, other countries are going in that direction,” said Caroline Lucas, a U.K. lawmaker and former member of the European assembly who said while she’s “not a fan” of carbon markets, “it’s the only game in town.”
“They’ve scuppered a chance of making the emissions trading system an effective tool in the battle to reduce climate emissions,” she said.
Following the vote carbon permits for December plummeted as much as 45 percent, a record, and extended losses the next day to an all-time low of 2.46 euros a metric ton. They have lost as much 85 percent in the past four years as the economic slump cut demand for pollution rights and aggravated a glut of allowances.
The limits on greenhouse gas discharges were set before the euro area entered two recessions in four years which lowered industrial production and emissions, cutting demand for the allowances in the system, which has no price floor.
“This makes the ETS irrelevant in Europe’s bid to reduce the use of fossil fuels,” Remi Gruet, senior climate adviser at the European Wind Energy Association said in a statement after the vote. “The carbon price will continue having no impact on investment decisions in the power sector.”
Without shoring up the carbon market, member states are instead likely to pursue their own policies, according to Buetikofer. “What industry will get will be a very scattered patchwork kind of regulatory framework which will make their life much more miserable and bureaucratic impediments will be much more burdensome,” he said.
The commission aims to propose by the end of this year a new set of goals to reduce greenhouse gases and boost the share of clean technologies in its energy consumption by 2030.
“It’s clear that now the 2030 discussion is more acute,” Finnish Environment Minister Ville Niinistoe said in an interview. Next year is going to be crucial for Europe as it needs to have a clear position to ensure predictability for investors and to lead international climate talks ahead of a planned 2015 global deal to cut greenhouse gases, he said.
A failure to tackle the glut of carbon permits may discourage utilities from switching to natural gas and other less-polluting energy sources from coal, the commission said in November. That may curb the spending needed in non-fossil fuel generation, estimated by Bloomberg New Energy Finance at about 400 billion euros, to meet the EU’s 2020 goals. The bloc aims to cut greenhouse gases by 20 percent from 1990 levels and derive a fifth of all energy from renewables by then.
“Green policies, if well designed, do not mean loss of competitiveness,” said Jos Delbeke, the commissions’ director general for climate. “The future of the EU lies in green growth, high-tech and innovation.”
The failed proposal raises a question of whether the EU can “ever be significantly improved,” said Chris Rogers, an analyst at Bloomberg Industries in London. “If something as minor as backloading can’t be agreed, then what hope is there for more ambitious carbon reduction targets for 2030, which are vital for both power and carbon prices?”
Copyright 2013 Bloomberg
Lead image: Emissions from a factory in Slovakia via Shutterstock