EU Countries Back Changes to Carbon Market to Limit Price Spikes
EU Agreement on Carbon Market Reforms
By Kate Abnett
Background and Motivation for the Changes
BRUSSELS, Sept 23 (Reuters) - European Union countries agreed on Wednesday to keep more spare CO2 permits in the bloc's emissions trading system (ETS), to try and avoid spikes in carbon prices, according to EU diplomats and a document seen by Reuters.
The plan, first proposed by the European Commission in April, is part of the EU response to a surge in fuel prices triggered by the Iran conflict, which has left governments scrambling for ways to curb energy bills.
The Role of the ETS in Energy Prices
The ETS is the bloc's main climate change policy, and is not the main reason for Europe's rising energy prices – but the changes agreed on Wednesday respond to requests from governments including Poland and Italy to curb the ETS's contribution to electricity costs.
Details of the Proposed Changes
EU countries' ambassadors agreed in a closed-door meeting to stop removing excess CO2 permits from the market, as is currently done, two EU diplomats told Reuters.
Instead, spare CO2 permits would be retained in a special "market stability reserve" as a supply buffer that could be released into the ETS market to counter price spikes.
How the Market Stability Reserve Works
The ETS obliges big polluters like power plants and factories in Europe to buy permits to cover their CO2 emissions, and trades spare carbon permits in a market where their price fluctuates daily.
Permit Thresholds and Cancellation Rules
At present, if there are more than 400 million CO2 permits in the market's stability reserve (MSR), the excess is deleted. The MSR is designed to release 75 million extra permits into the ETS, if the EU carbon price more than doubles.
Countries agreed that no spare CO2 permits will be cancelled until 2030, according to a draft of their agreement seen by Reuters.
From 2031, if there are more than 800 million permits in the MSR, the excess will be cancelled. This threshold will then decrease each year.
Next Steps and Impact
EU countries will now negotiate the final rules with the European Parliament, before they take effect.
Impact on Electricity Bills Across the EU
On average, the ETS contributes 11% to EU industries' electricity bills, although in countries with fossil fuel-heavy power mixes like Poland it is far higher. It is lower in countries with large amounts of low-carbon nuclear and renewable energy, like Sweden.
(Reporting by Kate Abnett; Editing by Andrew Cawthorne)
