Poland Asks EU to Clarify Carbon Rally on Speculation Concerns
(Bloomberg) -- Poland said record-high prices in the world’s biggest carbon emissions market may derail the European Union’s climate goals and called on the bloc’s regulator to investigate the latest rally amid concerns it was led by speculators.
Permits to emit carbon dioxide surged almost 60% in the past six months as the EU outlined plans to adopt stricter climate targets. Those involve speeding up the reduction in the number of available allowances, with the potential increase in their value seen luring financial investors into the cap-and-trade program.
“Poland recognizes the role of financial entities in ensuring market liquidity, but the impact of treating allowances as a long-term investment should be analyzed -– high volatility of EU allowance prices and the resulting need for constant updates of price forecasts negatively affects planning of the investment process,” Poland’s Climate Minister Michal Kurtyka said in a March 18 letter to the European Commission.
The latest spike in pollution costs raised concerns from Polish companies covered by the EU’s Emissions Trading System over “potential speculative nature of the volatility,” Kurtyka said in the letter seen by Bloomberg News.
As part of the EU’s Green Deal, lawmakers are considering deepening the bloc’s emissions-reduction target to at least 55% by 2030 from the existing goal of 40% compared with 1990 levels. The tightening will require further strengthening of the EU’s carbon market and increasing the scarcity of permits to pollute. The Commission is due to propose in June a reform of the market to align it with the ambitious green overhaul.
Benchmark EU carbon permits rose to an all-time high of 43.77 euros per metric ton on March 18. The price is expected to rise as high as 110 euros by the fourth quarter of this year because of a permit shortage, according to Lawson Steele, a utilities analyst at Berenberg. BloombergNEF said in December it anticipates a price of 80 euros by 2024, depending on what policies emerge from Brussels.
The EU emissions market is working and has a healthy level of liquidity, according to the commission. The cap-and-trade program has been subject to stricter regulation on financial markets for two years, ensuring control with regard to oversight and abuse, Beatriz Yordi, director for European and international carbon markets at the commission, said last week.
The spike in the cost of emissions came despite a pandemic-related drop in energy demand. “Too high” prices of allowances threaten the liquidity of companies, forces emitters to pass the cost of pollution onto customers and hinders the transition to a low-carbon economy, according to Poland.
“Bearing in mind the concerns of our entrepreneurs as well as the purpose of the EU ETS, we believe that this issue should be clarified,” Kurtyka said in the letter to EU climate, energy and competition commissioners. “Poland calls upon the European Commission to investigate this matter and take appropriate measures including changes to the EU ETS and other directives.”
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