Europe doesn’t need carbon price floor, EU lawmaker Werner says

27 May 2016 | Markets

The European Union doesn’t need a price floor in its emissions market, the world’s largest, to stimulate a shift to clean technologies, according to Martina Werner, a German Socialist member of the European Parliament.

The Parliament and the EU’s 28 national governments are discussing a draft law to adjust the bloc’s Emissions Trading System to stricter pollution-reduction goals for the next decade. As a part of the reform, France, which holds the rotating presidency of global climate talks, is pushing for a minimum price to strengthen the ETS after pollution prices slumped almost 80 percent in the past eight years.

“The ETS is a market-based instrument and if you regulate prices it will not be a market-based instrument anymore,” Werner, who is a member of the EU Parliament’s industry committee, said in an interview on Monday in Brussels. “That would be a wrong way to change it. Some things must be repaired, some must work better but it’s not a good idea to overhaul it totally.”

The carbon market, Europe’s flagship climate tool, imposes decreasing emission caps at more than 11,000 installations owned by utilities and manufacturers and has no price floors or ceilings. Benchmark allowances in the system were at 5.88 euros a metric ton at the ICE Futures Europe exchange in London on Wednesday, down 29 percent this year. Each emission permit covers 1 metric ton of carbon dioxide.

Domestic Price Floor

French Environment and Energy Minister Segolene Royal said earlier this month that she plans a domestic floor price for carbon at about 30 euros a metric ton, or about five times the current European level, and hopes Germany and other EU nations will follow. EU governments need more time to evaluate the French idea and define their stances on the issue after initial talks in Brussels, an EU official with knowledge of the matter said on May 17.

Germany, the biggest European economy, whose backing would help the proposal gain traction, has yet to take a position on the idea. While the Environment Ministry headed by Barbara Hendricks is considering support for a price floor, Economy Minister Sigmar Gabriel, who is chairman of the Social Democratic Party, has signaled reservations.

A change to the EU emissions market law would require qualified-majority support from national governments and majority backing from the European Parliament. It would also need to be endorsed by the European Commission, the EU’s regulatory arm.

EU Climate and Energy Commissioner Miguel Arias Canete spoke against a price floor last month, defending the current design of the ETS. To reduce a glut of carbon allowances weighing on prices, the EU decided to implement from 2019 the market stability reserve, a mechanism that would automatically control the supply of permits.

Price Recovery

Prices in the EU carbon market will recover when economic growth picks up and industrial production accelerates, boosting demand for pollution allowances, said Werner, whose Socialists & Democrats group is the second-largest political faction in the European Parliament. The reform of the ETS should focus on securing competitiveness of European companies while reaching the EU objective of reducing emissions by at least 40 percent by 2030 from 1990 levels, Werner said.

“The challenge is to find the right balance: we have to give the industry some incentives to invest in low-carbon technologies and at the same time meet our climate goals,” Werner said. “We also need to ensure the best performers in industries most at risk of carbon leakage get all their allowances for free.”


SOURCE: Bloomberg