The introduction of carbon floor prices by European countries would add unnecessary overlaps with new reforms to the bloc’s carbon market, creating risks of market distortions with no environmental benefits, International Emissions Trading Association (IETA) said on Wednesday.
Some EU countries are considering proposals that would "fragment the EU’s carbon market, reducing its efficiency and lead to competitive distortions," according to a new position paper published Wednesday by the IETA.
The association is calling on EU member states to reconsider introducing national carbon floor prices and to focus instead on supporting the EU Emissions Trading System’s role as the primary tool for emissions reductions.
"The major reforms adopted last year are still in the process of implementation," says Dirk Forrister, IETA’s CEO.
"It’s important that those decisions be allowed to work before adding more layers of policy. Floor prices aren’t needed when you have an operational Market Stability Reserve (MSR) that automatically adjusts supply," he stated.
"The MSR, which will begin to operate in January, will withhold from the market 24 percent of the calculated oversupply each year from 2019-2023, and 12 percent of the surplus each year thereafter. The European Commission estimates that the reserve will remove around 397 million EU Allowances from circulation in 2019," the IETA highlighted.
Under a national floor pricing mechanism, a country could set a minimum price for emissions that may or may not be higher than the EU ETS market price.
During the four-year legislative process that produced the ETS reform package, EU leaders considered and rejected an EU-wide floor pricing option, instead selecting the MSR as a preferable policy.
By Gulsen Cagatay