By Ben Garside and Nina Chestney
BRUSSELS/LONDON (Reuters) - European Union lawmakers backed a proposal on Tuesday to allow the EU Commission to prop up record low carbon prices by withholding 1.4 billion carbon permits from the third phase of the EU Emissions Trading Scheme, making prices jump 30 percent.
Worsening prospects for the EU economy and a glut of permit supply have pushed benchmark EU Allowances (EUAs) down by more than 60 percent over the past six months to a record low of 6.30 euros ($8.20) last week.
The price crash has led to renewed calls by environmental groups, investors and some lawmakers to change the cap-and-trade system to ensure it incentivizes lower carbon forms of energy and industrial production.
On Tuesday a majority of the 59 members of the European Parliament's cross-party environment committee agreed to make changes to an energy efficiency bill that would give the European Commission the role of a central bank in the world's biggest carbon market.
The vote is the first of three ballots that could lead to a cut of 8 percent in the supply of permits during the 2013-2020 trading phase.
Benchmark EUAs jumped over 30 percent to 9.65 euros a metric ton at 1139 GMT, but some traders doubted whether the rise would be sustainable.
"The market is likely to read it as a bullish sign, though its effect is likely to fade away in few hours. We may rise today, but will that even last till Friday? I doubt it," said Matteo Mazzoni, an analyst at Nomisma Energia.
"There are lots of steps between this positive vote and to get this amendment endorsed at the EU level. Probably too many to take that as a realistic possibility."
SUPPLY
The text beefs up a Commission bill in June, which set non-binding energy reduction goals for all 27 member states of the EU but failed to address how the measure would impact the EU ETS.
An amendment to cut overall supply was also passed.
There was a clear majority to withhold what was described as a "significant number" of carbon permits from the market, while the specific number 1.4 billion was passed by one vote.
"The 1.4 billion will not survive," German Christian Democrat Peter Liese told a news conference in Brussels.
Liese said there was support for intervening in the market going forward, particularly from Denmark, which takes over the rotating EU presidency from January 1.
"I am sure that the Danish presidency will work on it, and I am also sure that some member states will be supportive. It's in their interest to get more revenues," he said.
Danish Environment Minister Martin Lidegaard hinted on Monday that his country supports intervention to shore up carbon prices.
"There are different solutions, but it's too early to say (how this can be tackled), but we have to deal with it sooner or later," Lidegaard told reporters.
The EC would reduce the number of permits available to auction from 2013 in order to withhold permits and reduce supply. Under current EU rules, the supply of carbon permits is reduced by 1.74 percent per year from 2013 through 2020.
The parliament wants supply to be cut by 2.25 percent.
The committee's vote will be taken into consideration by the more senior industry committee of MEPs in January.
A full parliament ballot is expected around April, and all 27 national EU governments must agree to changes before they can become law. ($1 = 0.7682 euros)
(Additional reporting by Barbara Lewis; editing by James Jukwey and Jane Baird)
