EU agrees on more responsive carbon price control mechanism

The EU Parliament, Council and European Commission have agreed on a more responsive price control mechanism under the EU Emissions Trading System, lead lawmaker Peter Liese said Nov. 11.

The agreement came during a third round of three-way discussions under a raft of proposed reforms to the EU ETS under the bloc's Fit-for-55 climate package.

"We agreed on a strong mechanism against price hikes. The Article 29a was sharpened," Liese said in a statement.

Article 29a is a mechanism under the EU ETS Directive that allows for intervention to increase supply if the carbon price traded at more than three times the average of the preceding two years for six months or more.

The price has never reached such a level and the mechanism has never been triggered. Even if the threshold was met, it would leave any intervention at the discretion of the EC, under the old regulation.

That's now changed under the latest agreement, which has lowered the threshold for intervention and made it automatic rather than discretionary.

"The threshold for when it is activated goes down from 3 to 2.4 and 75 million allowances will be released in the ETS market automatically if the threshold is reached," said Liese, who is also the environment spokesman for the center-right European Peoples Party, the largest political group in the EU Parliament.

Consumers and industry are much better protected in this way and can prepare much better for the transition, he said.

Platts, part of S&P Global Commodity Insights, assessed EU Allowance prices for December 2022 delivery at Eur73.30/mtCO2e ($75.30/mt) at the close Nov. 10, up from Eur72.65/mtCO2e Nov. 9.

That compared with an all-time high of Eur98.42/mtCO2e on Aug. 19. Recent discussions around bringing future auction volumes forward to help fund the REpowerEU initiative have since taken prices down sharply from the August highs.

Tougher stance on climate finance

The EU's decision-making bodies also agreed much stricter wording on international climate finance, Liese said.

Some member states are already using the revenues from the EU ETS to contribute to their obligation to provide climate finance at the international level, but others are falling very short, he said.

The EU has now fixed legally that member states need to report on the obligations that they have in this respect, such as their commitment to continue scaling up their international climate finance toward the developed countries' goal of mobilizing at least $100 billion/year as soon as possible, and that they substantially increase their efforts further, he said.

The agreement came during the UN Climate Change Conference in Sharm El-Sheikh, Egypt, where industrialized countries are facing increased pressure to deliver on earlier pledges to provide climate finance to developing countries.

The EU institutions also agreed on including carbon capture and use and negative emissions through air capture, which means these technologies can be used to achieve the EU's climate policy goals, Liese said.

"They may even be included in the ETS but as this issue is very complex, the commission needs to assess all the options," he said.

However, little progress has been made on other major elements of the proposed reforms.

"On the big issues like ambition, ETS2 [a new standalone carbon market for buildings and transport], free allowances and the timetable of CBAM [Carbon Border Adjustment Mechanism], as well as the Modernization Fund and the Innovation Fund/Climate Investment Fund, we could not make any progress, unfortunately," Liese said.