LONDON — Lawmakers in Brussels moved on Tuesday to shore up the sagging market for carbon emissions permits, a central component of the European Union’s efforts to reduce air pollution.
Prices of carbon allowances, which let companies emit greenhouse gases, fell last month to as low as 2.80 euros, or about $3.75, a metric ton, compared with 9 euros a ton a year ago and 30 euros a ton in 2008. To reduce the supply of permits and drive up the price, the environmental committee of the European Parliament voted to allow the European Commission to reduce the number of allowances to be auctioned over the next three years.
After the committee’s vote, prices fell to about 4.60 euros a ton, from a close of 5.13 euros on Monday. But the panel’s vote had been expected, and the plan still needs approval from the full European Parliament and the governments of the 27 member states.
“It is really the first step in a long, long process,” said Kash Burchett, an analyst at the energy research firm IHS. The committee’s vote — 38 to 25, with two abstentions — is “a lifeline for the carbon market and for emissions trading as a policy tool for curbing emissions,” said Stig Schjoelset, head of carbon analysis at Thomson Reuters Point Carbon, a market research firm in Oslo.
If the vote had gone the other way, Mr. Schjoelset said, the Emissions Trading System would have been “more or less dead.”
The European Union introduced the system in 2005 in an effort to force utilities and manufacturers to reduce their carbon emissions. Under the system, companies are allocated a certain number of permits, each allowing them to emit one metric ton of carbon dioxide each year. If emissions exceed the level allowed by the permits, the companies must buy additional permits. Noncompliance risks heavy fines.
The total number of permits is scheduled to be reduced over time, forcing a corresponding reduction in emissions. The European Union is on track to meet its goal of reducing emissions in 2020 to 80 percent of 1990 levels, but that is mainly because the recession has reduced industrial activity and energy use. As a result, companies have a surplus of permits on hand, which depresses their price.
The plan approved Tuesday would take 900 million tons of carbon credits that are now scheduled to be auctioned from 2013 to 2015 and “backload” them so they are auctioned in 2019 and 2020. That will put a dent in the surplus of carbon credits, which is estimated at two billion tons.
It is widely thought that the European Commission has handed out too many credits. In 2012, for example, ArcelorMittal, the Luxembourg-based steel maker, sold 21.8 million tons of credits — about one quarter of the number it received from the commission — for $220 million. The company said it spent the proceeds on energy-saving investments.
Advocates say that carbon pricing, if properly managed, is the most efficient way to lower emissions. By putting a hefty price on carbon, the system lets investment decisions drive emissions reductions rather than having governments dictate investment in particular clean energy sources like solar or wind.
But industrialists and analysts say that single-digit prices for carbon permits do not provide sufficient incentive for companies to switch to cleaner fuels and energy-efficient technology.
Mr. Schjoelset said a price of 30 to 40 euros a ton was needed to encourage electricity producers to switch from coal to natural gas, a cleaner fuel.
This article has been revised to reflect the following correction:
Correction: February 19, 2013
An earlier version of this article misidentified an analyst at IHT, an energy research firm. He is Kash Burchett, not Kass Burchett.
This article has been revised to reflect the following correction:
Correction: February 20, 2013
An earlier version of this correction misstated the name of the energy research firm where Kash Burchett is an analyst. It is IHS, not IHT.