The European Commission is seeking emergency measures to "backload" carbon allowances from the market in a bid to bolster their low prices, which is hamstringing their ability to persuade polluters to invest in green technologies.
The government of German Chancellor Angela Merkel had been undecided on whether to support the backloading proposal, under which up to 900 million EU allowances would be withheld from auctions in the 2013-15 period and returned later -- a proposal that has been vehemently opposed by pro-business groups.
Carbon prices crashed to as low as $3.33 per metric ton in April due to an oversupply brought on by the economic slowdown. They have since rallied to nearly $8 per metric ton on hopes that a backloading deal can be struck.
The biggest German advocate against the proposal was Philipp Roesler, vice chancellor and chairman of the business-oriented Free Democratic Party. He frequently clashed over the issue with German Environment Minister Peter Altmaier of Merkel's Christian Democratic Union, who has endorsed the move.
The split had produced a paralysis on the issue in Germany's CDU-FDP coalition government, leading to uncertainty over whether the emissions trading fix could gain the needed backing of the European Council of Ministers.
The FDP, however, lost its seats in Germany's lower house of Parliament, the Bundestag, in Sunday's elections, dropping to only 4.8 percent of the vote -- leaving it below the required 5-percent level to hold seats in the body for the first time since its founding in 1948.
Roesler Monday offered his resignation as chairman following his party's historic defeat, which has left the CDU scrambling to find a new governing coalition partner. Political analysts said the most likely result would be a "grand coalition" with the left-leaning Social Democratic Party.
Whatever the final result, the exit of Roesler from the government will likely result in a smoother path for the emissions trading fix in Berlin, and by extension in the EU, energy analyst Trevor Sikorski of the British consulting firm Energy Aspects told Platt's before the election.
"The German government has been split on backloading and most people feel that it is the junior partners [the FDP] that have been most reticent in addressing this," he told the business news service.
"Any new government that heralds a shift leftwards -- such as a grand coalition of the CDU and SPD would be more likely to support [the proposal] than the current CDU-FDP pairing."
Now that the German elections are over, negotiations on backloading in the EU Council are likely to restart, with any agreement to be forwarded to the European Parliament, The European Voice reported.
EP members opposing backloading said propping up prices by manipulating the availability of allowances was the wrong way to bring about reforms and would only undermine confidence in the scheme.
Some have also predicted higher carbon prices would hurt the competitiveness of European industry and would only be passed along to consumers in higher household energy bills.
The current proposal includes assurances the backloading would only be a one-time-only affair and that allowances would be put back on the market "starting from the year following that during which allowances have last been withheld."
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