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By Alessandro Torello
European Union lawmakers Tuesday backed the possible withdrawal of carbon dioxide emissions permits from the EU carbon market, setting the stage for what could be tough negotiations with member countries, as pressure for action to boost stagnating carbon prices increases.
In a vote, the energy committee of the European Parliament, which is negotiating a draft energy efficiency law on behalf of the assembly, supported an amendment that calls on the European Commission--the EU executive power that oversees the carbon market--to monitor the law's implementation and possibly eliminate excess permits if prices on the Emissions Trading System fall.
The ETS is the EU's flagship tool to fight climate change by encouraging companies to invest in clean technologies to reduce emissions, rather than buying permits to emit more carbon dioxide on the market. But a lingering oversupply has depressed prices for months and the draft law risks pushing them lower by reducing the need for companies to hold permits.
The vote was closely watched because it gave an indication of where policy makers stand in the debate about how to boost carbon prices in an effort to restore credibility to the ETS. But the vote also illustrates that, while there is broad accord that the ETS has fallen short of achieving an energy revolution, and finding a workable solution on whether and how the ETS should be strengthened will be very challenging.
The Parliament will now negotiate a common text of the draft law with representatives of the 27 EU member countries, a task that could prove hard, as some governments, led by Poland, are traditionally opposed to making climate policy more ambitious.
Some companies, like Royal Dutch Shell PLC (RDSA) have supported initiatives to boost carbon prices, but others, like the chemicals sector, have been concerned that this would increase their costs in an already challenging economic situation.
Claude Turmes, the Green member of the Parliament who will represent the assembly in the talks with government after steering the legislation through it, remained optimistic. "All the Western European countries will be in favor," he said Tuesday. The vote "gives me a very broad and very solid negotiation mandate," he told a press conference.
The Parliament's support could turn out to be key as the commission is considering how to strengthen the carbon market. The fact that Denmark, known for its green credentials, will chair the talks because it holds the EU presidency until the end of June is also seen as a plus for those supporting action.
According to the text backed by the committee Tuesday, if the commission finds that the rules are driving carbon prices lower, it will have to trigger a mechanism to implement, by the end of the year, "appropriate measures which may include withholding of the necessary amount of allowances."
The wording is softer than the language used in December by the environment committee, which said in an opinion that a "significant" number of permits should be withheld from the market. That vote saw prices jump 30%.
Industry experts and environmentalists had mixed reactions to the new phrasing.
Brussels-based lobby group BusinessEurope said Tuesday that it supports letting the commission carry out an analysis of the problem, but the energy "committee pre-empting the result of this analysis by recommending 'withholding' allowances is not a good idea," said Folker Franz, Director for Industrial Affairs.
At the same time, Damien Morris, senior policy adviser at U.K.-based environmental non-government organization Sandbag expressed mixed feelings.
"We are pleased that a mandate has been given [in asking the commission to look at the issue], but we would have liked to see more ambition," he said.
Permits were trading around EUR9 Tuesday, still off the record lows at EUR6.50 hit at the end of last year. One permit, called an allowance, gives the owner the right to emit one metric ton of CO2.
-By Alessandro Torello, Dow Jones Newswires; +32 (0)2 741 14 88; firstname.lastname@example.org