EU’s Carbon Market Is Beset by ‘High Uncertainty,’ Report Shows
EU’s Carbon Market Is Beset by ‘High Uncertainty,’ Report Shows
(Bloomberg) -- There’s “high uncertainty” in the European Union’s carbon market amid a lack of clarity over what measures will be used to combat volatility, according to think tanks and analysts.
While the market functioned well last year, proposals by lawmakers and member states to curb speculation and sharp price swings in carbon allowances are raising questions over what level a future emissions cap may be set at, according to an annual report released by the European Roundtable on Climate Change and Sustainable Transition.
The EU’s carbon market is in the process of being overhauled as part of the bloc’s efforts to reach climate neutrality by the middle of the century. The planned changes -- including stricter emissions caps and a separate trading system for heating and transport -- have come under increased scrutiny amid an unprecedented rise in energy prices that helped fuel volatility.
The role of speculators has contributed to “questions about the current provisions to address excessive market price fluctuations, leading to high uncertainty,” according to the “State of the EU ETS” report. “Overall, the EU ETS had a good year in 2021, despite the ongoing Covid-19 pandemic.”
The report was co-authored by BloombergNEF, The Wegener Center for Climate and Global Change and EcoAct.
EU carbon emissions rose about 9% last year as the economy rebounded from the pandemic. While permit prices hit a record of almost 100 euros ($107) a ton in February, that’s not enough to significantly prompt utilities to switch from coal -- the dirtiest fossil fuel -- because of high gas costs, according to the report.
The authors, which include Andrei Marcu, executive director at ERCST, also said emissions permits haven’t been as big a factor in driving electricity prices as costs of fuels such as coal and gas. Some countries like Poland have called for the EU’s Emissions Trading System to be suspended until gas prices normalize.
Most performance indicators used to judge the functioning of the carbon market -- like volatility and volumes -- remained at similar levels in 2021 to the previous year, according to the report.
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