The price of carbon is expected to get a shot in the arm following a vote today in the European Parliament, which will see crucial reform of Europe’s flagship scheme to cut carbon emissions come in next year.
The vote, which was carried by a majority of MEPs
, marked the final hurdle in a new law that will allow the withholding of permits
for 900 million tonnes of carbon
– known as 'backloading
’ – on the European Union Emissions Trading Scheme
(EU ETS). Analysts said the price of carbon could surge by 35 per cent next year to €6 tonne on the back of today’s vote.
MEPs approved the 'backloading’ of EU ETS permits in the summer
as a short-term fix to address the price of carbon, which has fallen sharply in recent years.
Hæge Fjellheim, senior policy analyst at Thomson Reuters Point Carbon, said today’s vote took away " the last spark of uncertainty" about the EU ETS.
"Today’s vote finally confirms that 900 million allowances will be backloaded from the EU’s Emissions Trading Scheme (EU ETS) as of next year," she said.
The EU ETS is the world’s oldest and largest carbon trading scheme and is being replicated in other parts of the globe. But an oversupply of carbon permits and the Eurozone crisis have created a surplus of roughly two billion credits, which has pushed the price down to around €4 per tonne of carbon from a high of around €30 at its peak five years ago.
In recent days the price of carbon begun rising on the anticipation of today’s vote, and Marcus Ferdinand, senior market analyst with Thomson Reuters Point Carbon, said the market could see "a short-term 'buy the rumour sell the fact’ reaction where traders take profit on the anticipated outcome".
However, he added that as the implementation of the 'backloading’ measure "becomes more concrete", he expected "an upside" to permit prices in the coming months.
"Assuming the first allowances will be withheld from the market in the second half of 2014, we forecast the 2014 carbon price will increase by 35 per cent compared to this years’ price."
But analysts have warned that merely delaying the release of carbon permits, rather than cancelling them outright, will not be sufficient to drive up carbon prices to the level that ensures industry acts to cut emissions.
The EU ETS was set up to help tackle climate change by reducing CO2 emissions across Europe's industries.
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