April 17, 2013

EU Climate Policy on Verge of Collapse

The rejection by the European Parliament of a proposal to salvage the EU’s carbon-emissions trading system has left the program in utter disarray. The 334-315 vote on April 16th, generally regarded as a surprise, occurred against an anemic economic climate and European fears of a loss of competitiveness. Prices, which were over €6 a metric ton at the beginning of the year and have been sliding, fell yet further to around €2.5 a ton. The survival of the emissions-trading-system is now very much in doubt.  This now-dated chart from Spiegel Online shows the general tendency:

Notes Schumpeter at the Economist: “The ETS has long been troubled. The scheme is the world’s biggest carbon market, trading allowances to produce carbon which cover about half the European Union’s total carbon emissions. Partly because of weak industrial demand and partly because the EU gave away too many allowances to pollute in the first place, there is massive oversupply in the carbon-emissions market. Prices fell from €20 a tonne in 2011 to just €5 a tonne in February 2013. The European Commission, the EU’s executive arm, therefore hatched a plan to take about 900m tonnes of carbon allowances off the market now and reintroduce them in about five years time when, it was hoped, demand would be stronger (“backloading” in the jargon). This was the proposal the European Parliament turned down.”
Dave Keating, at EuropeanVoice.com, gives some immediate reactions:
Stig Schjølset, head of EU carbon analysis for PointCarbon, said the proposal is now “effectively dead”. “This means there will be no changes to the current system until 2020,” he said. “Prices will stay really low up to then. The EU ETS will not bring about any additional greenhouse gas reductions, so it will be irrelevant in terms of reducing total emissions in Europe.” 
"The EU's carbon market is at crisis point,” said Green MEP Bas Eickhout after the vote. He called the combination of centre-right MEPs, German Liberals and some hard left MEPs from the GUE group [European United Left] who voted to reject the proposal an “irresponsible and unholy alliance of MEPs.” . . .

Hans ten Berge, secretary general of electricity industry association Eurelectric, said the vote “is a dangerous set-back for the internal energy market and for EU carbon goals.” “Immediate carbon market reactions to the vote show how low the credibility of the ETS has fallen," he added. "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.”

Climate skeptics are gloating: “The EU has been the global laboratory testing the green agenda to see how it works,” writes Walter Russell Mead. The vote “means that the guinea pig died; the most important piece of green intervention in world history has become an expensive and embarrassing flop.  It’s hard to exaggerate the importance of this for environmentalists everywhere; if the EU can’t make the green agenda work, it’s unlikely that anybody else will give it a try.”

Climate hawks are depressed: in an interview with Spiegel Online, Felix Matthes says it will have grave consequences and predicts, with Hans ten Berge, a re-nationalization of climate policy: “The decision means the end of a European approach to climate policy. The paradox is that all the politicians who are constantly calling for more harmonization of climate policy in the EU and internationally are sending the policy back to the national level. That is an enormous step backwards -- also for global climate policy. Even China is now starting to pursue emissions trade. South Korea and Australia have already implemented it, and California has started a very ambitious system.”

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This chart from The Economist gives a longer view of the price movement:

April 19, 2013

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