On Tuesday, the European Parliament voted to reject a proposal designed to strengthen the EU Emissions Trading Scheme (EU ETS), despite support from a broad range of stakeholders including governments, industry, charities and major corporates.
The so-called ‘backloading’ proposal would have seen the temporary withdrawal of a number of allowances from the EU ETS, reducing supply as a short-term measure to help boost the carbon price.
SSE had joined companies and campaign groups from a range of sectors in urging MEPs to vote in favour, as the carbon price has become so low that it is no longer an effective means of incentivising much-needed investment in low-carbon technologies like renewables.
But the proposal was rejected by a margin of 19 votes (334 to 315), prompting the EU carbon price to slump from €4.40 per metric ton to less than €3. The backloading proposal will now go back to the Environment Committee in the European Parliament, which will have the difficult task of trying to renegotiate a new, more acceptable text.
A low EU ETS carbon price has particular implications for the UK, where in April the Government introduced its own carbon price floor – effectively a tax topping up the EU ETS price to a pre-defined level which is set to rise over time. This means the more the EU ETS price falls, the larger the differential between the carbon prices paid by UK companies and their European counterparts.
Bas Batelaan, Head of European Affairs at SSE, said: “The outcome of the vote in the European Parliament is very disappointing as we believe a strong EU ETS should be one of the main drivers for investments in low-carbon technologies like renewables. With backloading seemingly off the table for the time being, we should now focus on supporting the aim of the European Commission to introduce more structural, longer-term measures such as a permanent setting aside of allowances or a change of the annual linear reduction factor. Such measures have a key role to play in an effective 2030 energy and climate package, alongside binding targets for carbon reduction and renewables.”