EU Nations Back Carbon Market Overhaul to Curb Price Spikes
EU countries agreed to keep more spare CO2 permits in the emissions trading system to avoid carbon price spikes, deferring cancellations until 2031.
European Union member states have agreed to adjust the bloc's emissions trading system (ETS) so that surplus carbon permits are retained rather than removed from the market, in an effort to prevent sharp swings in carbon prices.
The decision, taken by EU ambassadors at a closed-door meeting, follows a proposal put forward by the European Commission in April. It forms part of the union's broader response to a surge in fuel prices set off by the Iran conflict, which has pushed governments to look for ways to ease energy costs.
Under the current setup, when the market stability reserve (MSR) holds more than 400 million CO2 permits, the excess is deleted. The reserve is also designed to release 75 million additional permits into the ETS if the carbon price more than doubles.
Under the agreed changes, no spare permits will be cancelled until 2030. From 2031, any amount above 800 million permits in the reserve will be cancelled, with that threshold declining annually thereafter.
The ETS requires major polluters such as power plants and factories to buy permits covering their CO2 emissions, with spare permits traded on a market where prices move daily. While the system is not the primary driver of Europe's rising energy costs, several governments — including Poland and Italy — had sought changes to limit its effect on electricity bills.
On average, the ETS accounts for about 11% of EU industries' electricity costs, though the share is considerably higher in countries with fossil-fuel-heavy power mixes like Poland, and lower in those with substantial nuclear and renewable capacity, such as Sweden.
The agreed position will now be negotiated with the European Parliament before the final rules take effect.