EU Short-Term Carbon Amendment Won’t Change Reserve Parameters
(Bloomberg) -- The European Union plans to keep key parameters of its mechanism that controls supply in the carbon market unchanged when it makes a short-term revision to help contain high power prices.
European Commission President Ursula Von der Leyen this month said the commission would address the carbon component in energy prices. Bloomberg reported last week that the bloc plans to amend the Market Stability Reserve — designed to automatically control the supply of permits for circulation — by scrapping a provision on invalidation of certain permits, allowing more to stay in reserve and be used as an intervention tool in case of any price shocks.
The commission will leave the volume thresholds for removing permits from the market, and the rate at which those permits are absorbed, intact in a proposal to be published Wednesday, according to people with knowledge of the matter. Removal of the invalidation provision will be the only change the EU will propose, said the people, who asked not to be identified commenting on draft documents.
Member states are worried that high costs will further burden companies that are being strained under energy prices that are higher than for rival industries in the US and China. Europe’s plans to revive its manufacturing sector and get it competing globally are largely reliant on whether officials can cut energy costs. The Iran conflict has also sharpened focus on the impact of expensive energy.
Carbon futures dropped earlier this month to an almost one-year low on concerns that EU governments will push for aggressive measures to cut carbon prices, including a suspension of the market.
The MSR withholds extra permits from the market if a certain threshold of allowances in circulation is met. It started absorbing permits in 2019, with the current version of the emissions trading law invalidating any allowances held in the reserve on Jan. 1 every year above the threshold of 400 million.
The commission has a long-standing policy of not commenting on unpublished documents.
The EU will also unveil a proposal on updated carbon efficiency benchmarks on Wednesday, according to the people. The benchmarks are indices that determine how many free permits certain companies in the Emissions Trading System can get to meet their emissions quotas.
While the new benchmarks are legally bound to reflect technological developments and improvements, the commission will use flexibilities within its existing laws when determining the values for the 2026-30 period, the people said. Energy-intensive industries have called for freezing the benchmarks to avoid too stringent adjustments that would lead to factory closures.
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