The European Commission (EC) has voted through proposals to postpone the sale of 900 million carbon allowances until 2019/20.

Under the EU Emission Trading System (ETS), businesses can receive or buy emission allowances (each one worth the right to emit one tonne of carbon dioxide (CO2), or the equivalent amount of two tonnes of nitrous oxide (N2O) and perfluorocarbons (PFCs)), which they can trade with one another as needed.

After each year a company must have enough allowances to cover all its emissions, otherwise heavy fines are imposed. If a company reduces its emissions, it can keep the spare allowances to cover its ‘future needs’ or else sell them to another company that is ‘short of allowances’.

However, due to a surplus of allowances on the market, the price for each allowance dropped from highs of around €30 (£24) to less than €5 in January 2013 (around £4), leading the EC to propose holding back any new allowances (known as ‘backloading’) in the third phase of the ETS as a way of ‘rebalancing supply and demand and reducing price volatility without any significant impacts on competitiveness’.

The proposal to backload carbon credits was initially rejected by MEPs in April 2013, over concerns ranging from potential detrimental impacts on energy-intensive industries (EIIs), to beliefs that the proposals did not go far enough in fixing what some saw as a ‘broken’ system.

However, after ‘stricter conditions’ were imposed on the backloading principle (including reintroducing credits ‘in a predictable and linear manner starting from the year following that during which allowances have last been withheld’, and making 600 million credits available to set up a fund to support the development of innovative low-carbon technologies), parliament voted to push forward with the amendment.

It was this amendment that was voted through by the Climate Change Committee, which includes representation from all member states,on Wednesday (8 January).

Welcoming the vote, Climate Action Commissioner Connie Hedegaard said: ''Back-loading is now a reality, and the Commission hopes that the first allowances can be back-loaded very soon. But while back-loading will help stabilise the carbon market in the coming years, we must also tackle the more structural challenges. The Commission will address these when it proposes the 2030 climate and energy framework later this month."

The amount of credits to be reduced in 2014 will be dependent on the start date of the backloading. The EC said it hopes that the changes to the system will begin ‘quickly’ and is requesting the European Parliament and the Council to shorten the scrutiny period (usually three months) to conclude the process. It is thus thought that backloading may start in March 2014.

The decision on the final length of the scrutiny period will then be taken by the Council and the European Parliament.

According to trader estimates compiled by business news outlet Bloomberg, the backloading principle could see the cost of carbon credits rise to €7.8 (£6.5) by the end of the year, up from around €4.7 (£4) today.

Read more about carbon trading in Resource 73.