EU countries back carbon market changes to curb price spikes

EU countries agreed on Wednesday to keep more spare CO2 permits in the bloc’s emissions trading system (ETS), to try to avoid spikes in carbon prices, Reuters reported, citing two EU diplomats and a document seen by the news agency.

Ambassadors agreed in a closed-door meeting to stop removing excess CO2 permits from the market, as is currently done. Instead, spare permits will be retained in a special “market stability reserve” as a supply buffer that can be released into the ETS market to counter price spikes.

The plan was first proposed by the Commission in April and is part of the EU response to a surge in fuel prices triggered by the Iran conflict, which has left governments scrambling to curb energy bills. The ETS is the bloc’s main climate policy and is not the main reason for Europe’s rising energy prices, but the changes answer requests from governments including Poland and Italy to curb its contribution to electricity costs.

Currently, if there are more than 400 million CO2 permits in the stability reserve, the excess is deleted; the reserve is designed to release 75 million extra permits if the EU carbon price more than doubles. Countries agreed no spare CO2 permits will be cancelled until 2030, and from 2031 the excess will be cancelled only above 800 million permits, with that threshold falling each year. EU countries will now negotiate the final rules with the European Parliament before they take effect.