EU Says Carbon Price Has To Be ‘Much Higher’ To Hit Climate Goal

(Bloomberg) -- The European Union’s climate chief said the record prices in the world’s biggest carbon market must go even higher to meet the bloc’s stricter pollution goals.

“It is a market mechanism, but if we want to achieve our goals, I think the price should be much higher than it is at even 50 euros,” Frans Timmermans told the European University Institute’s State of the Union annual conference. “But that’s the market.”

Timmermans warned the EU should be very careful not to step into the market to moderate the cost of emitting carbon dioxide in the EU’s Emissions Trading System, the bloc’s flagship climate tool. Prices for the pollution permits jumped above 50 euros ($60) a ton this week, and have doubled over the past six months.

The gains have prompted concerns by industry and some governments the unprecedented rally has been fueled by financial investors, rather than by the companies required to hold the permits under ETS rules. Investors flocked to the market as Europe’s plans to toughen its greenhouse-gas reduction target spurred demand for the emission rights.

Poland in March said record-high carbon prices may derail the EU’s climate goals and called for a European Commission investigation into whether the market’s rally was led by speculators.

Market intervention “would create a non market-based price that would absolutely undermine the credibility of the Emissions Trading System,” Timmermans said.

Benchmark carbon permits traded at 49.74 euros per metric ton at 9:04 a.m. in London on Friday. The EU ETS imposes pollution caps on almost 12,000 installations owned by manufacturers and power producers and also applies to airlines.

“I think it’s been working pretty well but all indications are, if I base myself on science, that for it to be really effective in the long run, the price needs to be be a lot higher,” Timmermans said.

The European Commission, the EU regulatory arm, will propose on July 14 a package of measures to align the economy to the bloc’s stricter 2030 emissions target, Timmermans said. The new regulations will include the biggest carbon market reform to date.

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