The carbon prices of the EU emissions trading system (ETS) are raping down, having fallen in March approximately 40% compared to last month. What is the reason for this price drop? This could be both a side effect of the lower electricity demand instilled by the COVID-19 crisis, and a market response to dropping fossil fuels prices.
This fall in CO2 prices, even if substantial, should however not seriously affect Europe’s decarbonisation ambitions. The EU ETS is equipped with two major mechanisms, the linear reduction factor (LRF) and the market stability reserve (MSR), which will continue to lead to cost-effective emissions reductions, if well set.
As the EU Commission prepares the impact assessment of the 2030 Target Climate Plan, Eurelectric flags the need to adjust the ETS Directive, in accordance with the updated 2030 targets. The key recommendations for maintaining a functioning emissions market are outlined in a position paper published today “Powering the Green Deal through robust ETS and effective carbon pricing”.
Reaching climate neutrality, as envisioned by the Von der Leyen Commission, goes beyond the reduction of emissions in ETS sectors. It requires a true burden sharing between ETS and non-ETS sectors. This includes also an urgent need to address sectors such as maritime (not yet exposed to any CO2 price), individual heating (insufficient CO2 price), or aviation – whose emissions allowances hamper the correct functioning of the MSR mechanism.
While there is currently no one-size-fits carbon pricing instrument, the calculation should consider: the number of emission sources, the abatement costs and barriers, the effect on the overall cap and the existing national policies and taxes.
Read our full position paper: “Powering the Green Deal through robust ETS and effective carbon pricing”.