EU pollution push in disarray on debt crisis distraction

Europe’s program to halt climate change is in disarray with lawmakers in the region expressing concern the drift is undermining the planet’s most significant effort to combat global warming.

Members of the European Parliament’s environment committee meet today for a second time to revive a plan the full assembly rejected that would have boosted the cost of greenhouse-gas emissions. The rebuff left the cost of pollution near a record low, leaving companies with less incentive to reduce emissions.

The situation “reflects a sea-change against climate policy,” said European Green Party Co-Chair Reinhard Buetikofer, who supported the plan. The effort to limit carbon gases “is not being perceived as an opportunity by industry but rather a burden,” he said, adding that the decision “destroyed the foundation of common European climate policy.”

With a recession in the countries sharing the euro in its second year, efforts to clean up the environment and spur renewables are taking a back seat to programs that bail out the most indebted countries and put people back to work. They herald a wider struggle to set new climate protection and renewable energy policies, and threaten to keep prices near historic lows in the Emissions Trading System, or ETS.

The region’s recession crimped manufacturing output, reducing pollution in the process. The EU’s failure to mop up surplus permits sent prices lower.

Company Impact
Lower carbon prices help power generators that use a greater share of coal, since burning coal emits about twice as much carbon dioxide as natural gas. Utilities such as RWE AG (RWE) in Essen, Germany, and Warsaw-based PGE SA benefit over those that derive energy mostly from the wind, natural gas and uranium, including Germany’s EON SE, France’s GDF Suez SA (GSZ) and CEZ AS in Prague. All have been hurt by a drop in power prices stemming from the economic slump.

“With a carbon price of nil, coal is by far the most attractive option,” said Chris Davies, a U.K. member of the assembly’s environment committee. “One of the purposes of the ETS was to give long-term direction to investors. With climate policy seen to be in disarray, there is no such direction.”

Companies need a stable carbon price on which to base investment decisions, said GDF Suez Chief Executive Officer Gerard Mestrallet. “We have to re-establish a carbon signal,” he told reporters on May 2. “Coal is being chosen ahead of gas, so gas plants are being stopped. It’s an enormous problem.”

EON CEO Johannes Teyssen said at the company’s annual meeting in Essen on May 3 that lawmakers have made the emissions system “shrivel” and that the vote was “a black day for efficient climate protection.” A company spokesman said it would hurt margins for generating power from gas.

Price Slump
The cost of carbon dioxide credits on the European Union emissions trading system have fallen almost 90 percent since peaking in 2008 to 3.60 euros a ton on May 3. Utilities that have a stock of carbon credits, such as Spain’s Endesa SA (ELE), may have to write down their value, said Jose Martin-Vivas, a utilities analyst for Mirabaud Securities in Madrid.

The proposal to temporarily cut oversupply of allowances divided EU governments, Parliament and industry. While nations led by France, Denmark and the U.K. backed the fix, Poland, Greece and Cyprus were among those opposing it, saying it would raise energy prices and might amount to market manipulation.

Lawmakers sent the plan, known as backloading because it delays auctions for new credits, back to the committee for more talks. Legislators on the panel are scheduled to meet today and tomorrow. They have until mid-June to recommend a solution on the market fix th the full assembly. Climate experts from the EU’s 27 governments convene on May 27 to discuss a solution.

German Position
Buetikofer said the measure was weighed down by German Chancellor Angela Merkel’s failure to speak in favor of it. On May 3, the chancellor said she supported backloading while indicating the coalition government doesn’t have a unified position on the matter yet. They were her first comments on the subject.

Mired in sovereign-debt crises that’s forced five nations to take bailouts, the EU is trying to balance climate policies that raise electricity costs high enough to encourage renewables against the need to keep manufacturers competitive.

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