By Kate Abnett
Brussels — The European Commission proposed adjustments to the EU’s emissions trading system (ETS) on Wednesday to try to avoid volatile carbon prices.
The commission has come under pressure from member governments, including Italy, to amend the system to curb soaring energy prices triggered by the Iran war.
The EU proposal would end the automatic cancellation of excess carbon permits in the ETS so that spare permits are kept in a special reserve as a supply buffer, which could be released in future if carbon prices spike.
At present, if there are more than 400-million permits in the ETS “market stability reserve”, the excess is invalidated. That system had cancelled 3.2-billion excess permits by 2024, but annual cancellations were expected to tail off in the coming years as the EU designed the supply of emissions permits to tighten over time, to ensure emissions decrease.
“We are keeping more allowances in reserve than previously foreseen to enable us to better manage possible price volatility in the future,” a senior EU official said. “We are serious about keeping prices stable,” they added.
Going through the motions
The benchmark EU carbon contract price increased after the commission’s announcement and was trading around €74/tonne of CO2 on Wednesday afternoon, buoyed by Brussels avoiding bigger changes to the ETS.
“It is little more than being seen to do something without actually doing all that much,” Trevor Sikorski, head of gas and emissions analysis at Energy Aspects, said of the proposal.
The market stability reserve is designed to release 75-million extra permits into the ETS, if the EU carbon price is 2.4 times higher than in the two preceding years — a system unchanged by Wednesday’s proposals.
Launched in 2005, the ETS is the EU’s main policy to reduce CO2 emissions, which it does by forcing about 10,000 power plants and factories in Europe to buy permits to cover their emissions.
This cost accounts for about 11% of EU industries’ electricity bills — and has prompted calls from leaders, including Italian Prime Minister Giorgia Meloni, to suspend the ETS for power plants to curb surging energy prices triggered by the Iran war.
Other governments, including Sweden and the Netherlands, oppose major changes, which they warn could undermine Europe’s main tool to tackle climate change.
Brussels will propose a bigger overhaul of the ETS in July, to redesign the system for the next two decades. The senior EU official said this could include prolonging the free CO2 permits industries currently receive to help them compete internationally.
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