EU carbon price forecast inches up on reform plans

‘Cautious’ proposals from lawmaker Ian Duncan will strengthen carbon market, say analysts, but not enough to meet long term climate goals

A low carbon price reduces pressure on EU heavy industry to go green (Pic: Marcel Oosterwijk/Flickr)


The EU should leave the door open for faster emissions cuts from 2023, in line with a UN global stocktake of ambition.

That was the recommendation of Ian Duncan MEP, in a report to kick off parliamentary debate on carbon market reform.

The British lawmaker also proposed stricter criteria for handing out free carbon allowances to industry under the bloc’s flagship climate policy.

These tweaks to the European Commission’s reform plans would make the emissions trading system (ETS) “an ambitious and effective tool to meet our climate change obligations,” Duncan said.

Analysts warned the draft amendments would do little to raise the cost of pollution, however.

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Emil Dimantchev at Thomson Reuters Point Carbon forecast Duncan’s plans would see carbon prices average €16 a tonne next decade, compared to €14/t under the Commission version.

That falls short of the €40/t traders polled by PwC consider necessary to hold global warming “well below” 2C, as agreed by governments in Paris.

“While Ian Duncan is advocating for an ambitious climate policy framework, he is doing so very cautiously and with an eye on the debate ahead,” said Dimantchev.

The European Parliament’s environment committee is due to consider the plans on 21 June. Lawmakers have a chance to propose amendments before a vote in December.

Carbon Market Watch campaigner Femke de Jong urged them to build in stronger ambition now, rather than leave it to 2023.

“It is very difficult to change the rules of the game when the trading period has started, so ideally you would bring the review forward,” she said.

Duncan endorsed plans to decrease the cap on traded emissions 2.2% a year from 2021. The Commission’s own impact assessment showed that would need to rise to 2.4% to meet the EU’s 2050 target. The difference amounts to 2 billion tonnes of CO2 next decade.

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Previous attempts to tighten the carbon market have met resistance from energy intensive industries like steel and cement. They claim higher prices will make them uncompetitive against less stringently regulated rivals overseas.

That argument holds sway with politicians, despite evidence major polluters have reaped windfall profits from surplus free allowances.

The OECD recently weighed in on the debate, saying environmental rules made little difference to competitiveness. It made more sense to retrain redundant steelworkers than use carbon market loopholes as life support for struggling industries, economists advised.

In an interview with The Parliament magazine, Duncan acknowledged today’s prices of around €5 were inadequate to drive change. “At best that’s an irritant,” he said. But he emphasised the need to build cross-party consensus around reforms.

Impatient with the Brussels stalemate, France has called for a “price corridor” to give investors more confidence that investment in carbon-cutting measures will pay off. The idea has found little support from other member states and is nowhere in the draft legislation.

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