EU plans price controls for new carbon market

By Kate Abnett

BRUSSELS (Reuters) -The European Union is drafting measures to control prices in its new carbon market, in response to governments' concerns that the emissions-cutting scheme could increase fuel bills, the bloc's climate chief said in a letter seen by Reuters.

The policy is designed to impose a price from 2027 on planet-heating emissions produced by heating and transport fuels, to encourage the shift to electric vehicles and cleaner home heating systems. Revenue from the scheme would be spent on helping people pay bills, subsidise electric cars and energy-saving home renovations.

However, some governments fear the measure will stoke opposition to climate change policies from citizens, if it is perceived as raising their bills. A group of 19 countries including the Czech Republic, France and Germany asked Brussels this year to introduce stricter price controls to address this.

"I understand the concerns regarding uncertainties on future price levels and price volatility in ETS2 (the upcoming carbon market) and share those to a large extent," EU climate commissioner Wopke Hoekstra said, in a letter responding to the demands.

The new EU carbon market is designed so that if the CO2 price hits 45 euros, extra CO2 permits will be released into the market to tame prices.

PROPOSAL TO DOUBLE NUMBER OF PERMITS RELEASED

Hoekstra said the Commission will propose doubling the number of permits released in this scenario to potentially reach up to 80 million per year in 2027, 2028 and 2029.

"This will more decisively address unwarranted price rises and improve market confidence, which is key to plan decarbonisation investments," said the letter, dated October 21.

The Commission will also propose launching carbon permit auctions early, in 2026, to provide governments with funds to kick-start investments to help people shift to cleaner technologies.

Czech Prime Minister Petr Fiala on Wednesday welcomed the plans, but said he wanted Brussels to go further and delay the carbon market's launch.

EU countries' leaders will discuss the bloc's new climate target for 2040 at a summit on Thursday, with a focus on what funding or policies are needed to ensure businesses and citizens can meet the goal.

(Reporting by Kate Abnett; additional reporting by Jan Lopatka, Jason Hovet, editing by Ed Osmond)