EU Nations Seek New Carbon Market Changes to Prevent High Prices
(Bloomberg) -- A group of European Union countries want changes to the region’s new carbon market in order to prevent a surge in prices that could trigger a backlash against ambitious climate measures.
Member states including Austria, Belgium, the Czech Republic and Italy are seeking steps such as early auctions of permits and stronger price controls in the EU cap-and-trade carbon program for transport and heating fuels, according to a draft document seen by Bloomberg News. The EU is due to start the Emissions Trading System 2 in 2027, complementing the existing ETS1 system that covers manufacturers, airlines and shipping.
“To address the legitimate concerns around price uncertainty and social impacts and to strengthen the public acceptance of the system, improvements should be considered already prior to the market’s launch,” the nations said in the document.
Carbon trading is a key tool for the 27-nation bloc to reach its mid-century climate-neutrality target and slash emissions by at least 55% by 2030 from 1990 levels. The call on the European Commission to consider changes to ETS2 comes as the EU’s regulatory arm is finalizing a proposal to set a 2040 goal to slash emissions by 90% from 1990 levels.
While emissions markets reward companies that cut pollution fast and generate revenues that governments can use to shield most vulnerable consumers, some member states are increasingly worried that rising carbon prices will stir opposition from consumers and businesses.
The signatories of the document seek a regular publication of key indicators, such as sales of electric vehicles, heat pump installations or building renovation rates to provide more clarity on expected demand for ETS2 permits.
Other changes they are calling for include reinforcement of ETS2 price-stabilization provisions. It could include extending beyond 2031 the Market Stability Reserve that would absorb or release carbon permits into the market under certain circumstances.
The group also floated an option of strengthening a mechanism to smooth out price volatility. Under the current rules, if the price exceeds €45 in the early stage of ETS2, additional permit allowances may be released from the reserve. The EU could increase either the volume or frequency of injections, according to the document.
The signatories also include Lithuania, Latvia, Poland, Slovakia, Bulgaria, Croatia, Romania and Slovenia.
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