BRUSSELS (Reuters) – The European Union should resist calls to blunt its carbon market by curbing prices or financial participants’ involvement in the scheme, two former senior European Commission officials said on Thursday.
European carbon prices have risen more than 20% since a December summit where EU leaders adopted a tougher emissions-cutting target – a move expected to stoke further price increases, with Brussels due to propose carbon market reforms this summer to reach the new goal.
However, recent sharp price increases, attributed by some market observers to the involvement of financial participants like hedge funds, have sparked rumours the EU could restrict their involvement in the market.
“This is not as simple nor as effective as it sounds,” former European Commission climate officials Jos Delbeke and Peter Vis said on Thursday in a policy paper for the European University Institute.
Limiting the amount of permits financial investors can hold in registry accounts would not directly address the carbon price moves playing out in the futures markets, they said. Amending the rules could also take years to adopt.
As countries and companies grapple with the economic impact of higher carbon costs, the former EU officials said Brussels is likely to face renewed calls to introduce price controls such as a “ceiling” on the cost of permits sold in auctions.
If prices did go “through the roof”, then this could be better managed by the EU gradually expanding the supply of CO2 permits, they said. That could be done by allowing projects that remove carbon dioxide from the atmosphere to generate permits.
“A higher carbon price is what was always intended to drive change and blunting the instrument must be avoided,” they said.
While Europe’s carbon price has shot up this year, it remains far below the $50-$100 per tonne of CO2 range economists say is needed to trigger the investments in low-carbon energy and industry required to rein in catastrophic global warming.
(Reporting by Kate Abnett; Editing by Dan Grebler)