As communicated in our February 2013 newsletter, in advance of decisions on options to structurally reform the design of the EU ETS, the European Commission recommended changes to the timetable for auctioning EU Allowances – essentially a one-off postponement of the auctioning of up to 900 million EU Allowances to a later date in the third phase (2013-2020) of the EU ETS (Backloading Proposal).

At its first reading in the European Parliament on 16 April 2013, the European Parliament rejected the Backloading Proposal by a narrow margin.

Those familiar with the EU legislative process (particularly in relation to the EU ETS) would not have been surprised at this outcome (or the reaction that followed).

The process requires agreement between the European Parliament and the Council of the European Union and may require second and third readings by both institutions.

We anticipate a revised Backloading Proposal (developed by the European Parliament’s Environment Committee over the next 2 months) will form the basis of a common position adopted by the Council of the European Union at its first reading which is then considered during its second reading in the European Parliament.

Ultimately, legislative certainty on a revised Backloading Proposal is not expected until later this year after the completion of the legislative process.

In parallel, some of you may wish to keep abreast of additional changes (and proposed changes) to the EU ETS including the amendment (agreed by both the European Parliament and the Council of the European Union) to exclude emissions from international flights from liability under the EU ETS for 1 year.

Quantitative analysis required

While we will keep you informed of important legal developments, we again recommend identifying your preferred method for quantitatively analysing the impact of changes to the EU ETS and the Australia Carbon Pricing Mechanism as and when these legislative decisions are made and are subsequently implemented.