The measure, known as back-loading, would have temporarily removed 900 million allowances from the oversupplied ETS. The aim was to boost the price of emissions credits by limiting their availability.
The proposal was defeated by a narrow margin with 334 MEPs voting in favour of an amendment rejecting the proposal, 315 voting against it and 63 abstaining.
The majority that voted against the plan cited concerns that interfering in the supply of credits could undermine participants’ confidence in the system.
The decision will be welcomed by heavy industries that are operating with lower margins than before the economic crisis, according to Sunilkumar Ramakrishnan of KPMG.
“Using backloading would result in prices going up and this is not something that heavy industries are able to cope with,” said Ramakrishnan.
However Ramakrishnan said, while limiting the number of emissions credits available would result in the price of carbon going up, it would have a short-term impact.
“It is important that these industries grow and are given time to come up with cleaner technology, which cannot be developed in one or two years,” he added.
However supporters of the measure argue a surplus of credits must be redressed to ensure the system operates as is intended.
Constanze Adolf, director of Green Budget Europe's Brussels office, said while back-loading would not repair the ETS, it would have bought time to allow for more fundamental structural reforms of the system.
“It also substantially reduces potential revenues from auctioning and thereby reduces funding available for green technologies, climate policy and sustainable development within the European economy,” said Adolf. “Low-carbon investments will be put on hold – while companies put an additional price on their products as if the ETS would work. This is not acceptable.”
Connie Hedegaard, European Commissioner for Climate Action, said in a statement: “Europe needs a robust carbon market to meet our climate targets and spur innovation. The Commission remains convinced that back-loading would help restore confidence in the EU ETS in the short term until we decide on more structural measures.”
The ETS was created in 2005 and sets an overall emissions ceiling, which is gradually being reduced over time. Below this ceiling companies receive or buy credits auctioned by member states. Companies must auction unused credits. The aim of the system is to reward companies that invest in limiting emissions.
The proposal will now go back to the Parliament's environment committee for further consideration.
