EU cap-and-trade system suffers blow

BRUSSELS (AP) -- Europe's fight against climate change was dealt a setback on Tuesday, when EU lawmakers voted against a proposal that would have made it more expensive for utilities and other businesses to burn fossil fuels.

The European Commission wanted to make companies pay more for each ton of carbon dioxide they release into the atmosphere — activity that scientists say contributes to climate change. The European Parliament rejected the proposal by 334 to 315, with 63 abstentions.

Businesses applauded the decision which spares them facing increasing costs for pollution permits, but environmental groups decried it as a fatal vote that "undermines Europe's credibility in fighting climate change."

The European Union cap-and-trade system — the world's biggest — was introduced in 2005 in the hope of encouraging industries to reduce emissions and invest in greener technologies.

The system is designed to limit the carbon dioxide emissions of power plants and big factories in the EU by issuing permits for each ton of carbon they can emit. Companies can trade these certificates, providing an incentive to cut emissions. Over time, the number of allowances will be lowered, thus cutting overall emissions in the EU.

However, the system is currently not working because the prices for licenses have dropped amid lower-than-expected demand because of Europe's stalling economy, languishing at around 5 euros ($6.5) per ton.

The EU Commission, the 27-nation bloc's executive arm, had proposed tightening the supply of allowances by delaying the auction of 900 million additional pollution licenses — a move that would have increased the price of those already in the market.

The European Parliament at its meeting in Strasbourg rejected the proposal. In a separate vote, however, the lawmakers referred the matter back to the relevant committee, leaving the door open for further negotiations on the matter.

The EU Commission attacked the outcome of the vote, but vowed to pursue efforts to amend the system.

"Europe needs a robust carbon market to meet our climate targets and spur innovation," EU Climate Commissioner Connie Hedegaard told lawmakers.

Supporters of the system warn that, by failing to reform it, carbon trading in Europe risks sinking into irrelevance — as well as hurting the prospects of similar initiatives in other industrialized countries.

"With their vote, the lawmakers have not only doomed the flagship of Europe's fight against climate change to irrelevance, but also undermined Europe's credibility in fighting climate change," environmental lobby groups Greenpeace and the WWF said in a joint statement.

In the U.S., President Barack Obama's efforts to pass a cap-and-trade bill at the federal level failed on Capitol Hill due to bipartisan opposition.

California, however, has introduced a program similar to the EU's. The scheme sets a limit on the amount of carbon that can be released annually from the state's biggest industrial polluters, with permits being auctioned off and the cap declining over time.

Also Tuesday, European lawmakers backed a proposal to freeze charges on carbon emissions for intercontinental flights, in a move that helps prevent a global trade dispute.

This means all flights travelling to or from countries outside the European Union are excluded from a carbon tax for a year pending an international agreement in negotiations at the International Civil Aviation Organization.

Airlines operating within the EU must buy pollution permits, but the planned inclusion of foreign airlines flying into or out of the 27-nation bloc drew criticism from the United States and China.

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