European Cap-and-Trade Takes Step Backward After EU Parliament Vote

European cap-and-trade suffered a huge setback after the European Parliament rejected a plan to shore up the ailing carbon emissions trading system. First launched in 2005, the European Union established the European Union Emissions Trading System (EU ETS) to cap the amount of greenhouse gases emitted by the region’s 12,000 factories and power plants.

Think of the cap-and-trade system as a game of musical chairs--over time the amount of carbon permits was to decrease incrementally, with the idea companies would invest in cleaner technologies. Europe’s issue, however, is various interests demanded more “chairs”, or technically, permits. Add the stagnant European economy and debt crisis and naturally those permits’ price would slither in only one direction: down.

At its heyday the price per ton of carbon was over €30 ($40). But as Europe’s economy stagnated and more permits cascaded into the market, the EU ETS price fell precipitously. Back in January alarm bells sounded as the price per ton fell to less than €3 per ton--about the price of a burger at a fast food joint (or H&M shirt). That month the EU Parliament voted against a proposal to “backload” the release of additional purchase, which in turn would have boosted the price of carbon. Critics of the system said the EU ETS had released far too many carbon permits at the behest of major industry groups. And with yet another “No” vote this week, many observers believe the system is near collapse.

The vote was typical of other issues affecting Europe, with wealthier countries supporting the "backloading” proposal while emerging economies such as Poland rejecting the idea. With the cost per ton well under €3 again, supporters of the carbon trading scheme wanted to postpone the issuance of new permits by five to seven years. Now with the measure defeated by 19 votes, many observers doubt the long term viability of the EU ETS--which was the first and then the largest carbon emissions market on earth and inspired similar ventures such as the one in Australia.

Despite the complaint 900 million permits on the market are way more than necessary, the general response of industry groups is Europe’s stalling economy is to blame. Supporters of EU ETS respond the cheap carbon permits flooding the markets offer no incentive to invest in building retrofits or clean energy technologies. Considering this is the world’s model carbon emissions system, the future of cap-and-trade at the moment is for now an uncertain one.

Based in Fresno, California, Leon Kaye is the editor of GreenGoPost.com and frequently writes about business sustainability strategy. Leon also contributes to Guardian Sustainable Business; his work has also appeared on Sustainable Brands, Inhabitat and Earth911. At Better4Business in Anaheim on May 2, he will join a panel discussing how companies can present their CSR initiatives to the media. You can follow Leon and ask him questions on Twitter or Instagram (greengopost).

[Image credit of the Belchatow Power Station in Poland, Europe’s largest power plant: Wikipedia]