Carbon auction proposal would lead to rising energy prices

Rising energy prices during the economic downturn sounds like a bad idea for households and European competitiveness alike. However, that would be the outcome if the European Commission's proposal on the timing of auctions of greenhouse gas allowances is accepted.

The EU Emissions Trading System (EU ETS) has created the world's first major carbon market with an EU-wide carbon price. And as the market functions as the market should, it hasn't been immune to economic downturn. A quiet economy means a quiet carbon market, where the supply of carbon certificates exceeds demand. The result has been a sinking emissions price.

European Commission wants to postpone auction of emission certificates

To correct this situation, the European Commission made a proposal for a temporary removal of emission certificates from the market during the third trading period of the EU ETS from 2013 until 2020. The so-called back-loading proposal means postponing the auctioning of 900 million allowances from 2013-2015 to later years of the trading period. With that, the commission says, it wants to ensure the orderly functioning of the European carbon market.

Intervention in already-functioning carbon market endangers economy

But the market mechanism is already functioning, says MEP Eija-Riitta Korhola, negotiator for the EPP Group in the Committee on Environment, Public Health and Food Safety. She has serious doubts about the intervention in a functioning market and sees the Commission's proposal as just an artificial tool to increase carbon prices.

The proposal will have substantial effects on European energy supply and economic competitiveness by raising energy costs. Households and industry would both face the new price tag on their energy bills. In the present economic situation it would also weaken the possibilities for growth and creating new jobs.

More global CO2 emissions through rising energy prices

There is also a relevant risk of carbon leakage if emission costs rise too high, as MEP Richard Seeber, EPP Group Co-Coordinator in the Environment, Public Health and Food Safety Committee, has warned. Global CO2 emissions rise when industries are pushed outside the EU by emission costs that are too high. EU industries would be weakened and more greenhouse gas would be produced outside Europe.

Climate target can be reached without back-loading

The back-loading proposal is not even needed to reach the EU's carbon emissions objective. Just last year carbon emissions fell by 1.4%, according to European Commission data, as industrial output slowed and renewable energy generation jumped.

So the existing methods are putting Europe on the right track for reaching its cut of 20% of carbon emissions from 1990 levels by 2020.

Next steps

The European Parliament will debate and vote on the back-loading proposal in its April plenary session in Strasbourg next week. The EPP Group calls for the rejection of the proposal.