EU agrees stronger price controls for new carbon market
By Mrinmay Dey and Kate Abnett
June 11 (Reuters) - The European Union agreed stronger measures to control prices in its new carbon market early on Thursday, responding to governments' concerns that the emissions-cutting initiative could increase fuel bills.
Key Measures and Implications of the New Carbon Market
Permit Release Mechanism and Price Controls
Following negotiations that ran late into Wednesday night, EU countries and the European Parliament agreed that if the cost of permits in the new carbon market exceeds €45 ($52) per tonne of CO2, then 40 million permits will be released into the market from a "stability reserve" to regulate supply, up from a previous 20 million, the Parliament said in a statement.
The reserve can be triggered twice per year, adding a total of 80 million extra permits to the market annually. The reserve will also be extended beyond 2030 rather than expiring that year.
How the Stability Reserve Works
The agreed changes also include a more staggered release of permits from the market stability reserve, to avoid sudden supply changes that could trigger sharp price moves. Smaller volumes will start to be released as soon as the amount of permits in the market drops below 260 million, replacing the previous plan to release 100 million permits when the total falls below 210 million.
ETS2: The EU's Second Emissions Trading System
The EU's second emissions trading system, known as ETS2, will impose a price from 2028 on CO2 emissions produced by heating and transport fuels to encourage a shift to electric vehicles and cleaner home heating systems.
It will require fuel suppliers and distributors to buy CO2 permits from the ETS2 market to cover their emissions.
Use of Proceeds
Proceeds from the scheme will be spent on helping people pay bills, buy electric cars and invest in energy-saving home renovations.
Comparison with Existing Emissions Trading System
The scheme is separate from the EU's existing emissions trading system, which covers power plants and heavy industries.
Government Concerns and Policy Adjustments
The stricter measures to regulate ETS2 prices follow warnings from governments, including France and the Czech Republic, that the new program risked stoking opposition to climate change policies if it was perceived as raising consumers' fuel bills.
Next Steps and Formal Approval
EU countries and the European Parliament must approve the deal before it enters into force. That step is usually a formality that waves through pre-agreed deals without changes.
Additional Information
($1 = €0.8666)
(Reporting by Kate Abnett and Mrinmay Dey; Editing by Muralikumar Anantharaman, Tom Hogue, Alexandra Hudson)
