Currently, any surplus of carbon allowances on the European emissions trading market is automatically canceled if it exceeds 400 million. However, the European Commission is considering scrapping this rule. This measure is intended to stabilize price fluctuations in the carbon market.
Politico reports this, citing EU officials.
Preliminary reports suggest that this decision could be officially announced as early as Easter (approx. April 5, Western calendar). Planning for these changes began following a statement by European Commission President Ursula von der Leyen regarding a review of carbon rules. In particular, she stated that she would present a proposal to EU leaders to enhance the effectiveness of the Market Stability Reserve, which influences prices in the EU Emissions Trading System (EU ETS).
The essence of the change
The carbon allowance reserve acts as a kind of buffer in the emissions market. However, currently, if the volume of allowances in it exceeds 400 million, they are automatically canceled. As a result, the price of emissions rises due to the reduction in their quantity.
If more allowances are left in the system, the market may become less volatile. While this will not directly affect carbon prices, it could make the system more stable and reduce the sharpness of price fluctuations.
Government dissatisfaction
In recent weeks, the European Union’s Emissions Trading System (ETS) has faced fierce criticism from a number of EU countries. This mechanism was created to reduce emissions and combat climate change, but some member states believe it places excessive pressure on industry. In particular, Poland and Italy have demanded a reduction in the price of emissions within the ETS, as energy costs have risen significantly since the start of the war in Iran.
For its part, the European Commission is defending the carbon system. It states that ETS tariffs account for just over 10% of the average European electricity bill.
EcoPolitic previously reported on four measures the European Commission proposed to ease regulation in the carbon market. Specifically, these include revising the benchmarks for free emission allowances, as well as a future review of the EU ETS system as a whole.
