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April 16, 2014

European Union (EU) Carbon Trading System Wins Parliament's Support

On July 3rd, the European Parliament approved a proposal to delay the issue of 900 million emissions allowances (each representing the right to emit one metric ton of carbon dioxide or greenhouse gas equivalent, or CO2e). The purpose of the measure is to ease supply pressure in the European Union Emissions Trading System (EU-ETS), which has been trading CO2e allowances at a level that is viewed by most policy makers and traders to be too low to have the intended policy effect, which is to encourage investments in CO2e emissions-abating technologies. Final wording of legislation that will implement the proposal is yet to be agreed on. In April, the European Parliament rejected a similar proposal, and that rejection led many to question the long-term viability of EU-ETS. We observed here that a collapse of the EU-ETS would not bode well for California’s emerging carbon emissions trading market.

The proposal that passed the European Parliament was more protective of the environment than the proposal that cleared the European Environment Committee last week. The proposal that cleared the Committee contained certain compromise amendments, which were ultimately rejected, that would have sooner permitted the issue of the backloaded allowances and directed proceeds of the sale of CO2e allowances to heavy industry, who are among the interest groups most immediately and concentratedly affected by the price of carbon emissions.

Today’s approval of the backloading proposal is viewed positively by supporters of investment in energy efficiency and renewable energy development and preserves the good standing of the world’s largest market-based mechanism for the regulation of greenhouse gasses.

Copyright © 2014, Sheppard Mullin Richter & Hampton LLP.

About the Author

Jeffrey F. Rector, Financial and Banking Attorney, Sheppard Mullin Law Firm
Associate

Mr. Rector brings years of experience working for project developers, lenders and contractors on limited recourse financings of complex projects. He primarily represents clients in connection with the development and financing of distributed generation projects, centralized power projects, mining, water, and other infrastructure projects. Mr. Rector specializes in first of a kind transactions where the financiability of a project depends on governmental participation or policy support.

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