The politics of Europe’s new carbon plan

On 8 July the European Parliament – after a year-long saga of failed committee votes and rejected reports – finally voted to introduce a mechanism to stabilise the European emissions trading system (ETS). The Market Stability Reserve (MSR) adopted by the European Parliament is a measure to temporarily adjust the supply of emission allowances in order to boost the carbon price. As I argued back in 2013, I think the mechanism itself is inappropriate for ensuring an investible carbon price. The main value of the tool is thus not the mechanism itself, but the political signal of support from the European Parliament and the European Council for the ETS.

It is therefore interesting to look into the voting results – the most visible political signal. The main observation is that the carbon price did not markedly move after the European Parliament stronglyvoted in favour of the MSR (495 MEPs voted in favour, 158 against, with 49 abstentions). This signal was evidently anticipated, as there was almost no reaction on the day. Indeed, it was not strong enough: emission allowances are still trading at significantly lower prices than initially envisaged.  This weakness of the political signal might be partially explained by the complicated parliamentary history of the MSR.

The second interesting observation is that there is a strong positive correlation between countries’ per-GDP emissions and votes against the MSR. For example, most MEPs from Poland or Bulgaria (which are among the least carbon-efficient economies) voted against the MSR.

National votes against per-GDP emissions:

A third observation is that some fairly carbon-efficient member states such as France, Italy and the United Kingdom produced about twice as many ‘no’ votes than one would expect from their carbon-intensity. In fact, a large share of the ‘no’ votes came from MEPs representing parties such as the Front National in France (21 of 25 noes), UKIP in the UK (all 19 noes) and Movimento 5 Stelle in Italy (15 of the 20 noes). This might be explained by these parties general opposition to any European-level instruments.

Percentage of ‘no’ votes by party group:

In conclusion, the MSR vote did indeed deliver a political signal in favour of emissions trading in Europe. However, despite the strong positive result, the fine details are less encouraging.

Appendix – Results by country:

Appendix – European Parliament Political Groups:

• S&D: Group of the Progressive Alliance of Socialists and Democrats in the European Parliament
• GUE/NGL: Confederal Group of the European United Left – Nordic Green Left
• EPP: Group of the European People’s Party (Christian Democrats)
• ALDE: Group of the Alliance of Liberals and Democrats for Europe
• Greens/EFA: Group of the Greens/European Free Alliance
• ECR: European Conservatives and Reformists Group
• EFD: Europe of Freedom and Direct Democracy Group
• ENF: Europe of Nations and Freedom
• NI: Non-attached Members

This article was originally published by Bruegel, the Brussels-based think tank. Read the article on their website here. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Georg Zachmann joined Bruegel in 2009 and is a member of the German Advisory Group in Ukraine and the German Economic Team in Belarus and Moldova. 

 Image: A chimney in an industrial area of Sydney emits vapour June 22, 2009. REUTERS/Tim Wimborne