By Kate Abnett
BRUSSELS, March 25 (Reuters) – The European Union is considering ending automatic cancellation of excess carbon permits in its emissions trading system, in an attempt to avoid future price volatility, EU officials told Reuters.
The draft plan is part of the EU response to a surge in energy prices triggered by the Iran war. Governments including Poland and Italy have asked Brussels to intervene to curb the contribution of the ETS to electricity bills.
A Commission spokesperson did not immediately respond to a request for comment on the proposed change to the ETS, which is the EU’s main policy to reduce climate change. It requires power plants and industries to buy permits to cover their emissions, a cost which is then passed on to consumers.
The draft plan would not cap ETS prices. Rather, it would mean more spare permits are kept in a “market stability reserve” as a supply buffer which could be released if carbon prices spike.
At present, if there are more than 400 million permits in the MSR at the end of year, the excess is invalidated.
The MSR is designed to release 75 million extra permits into the ETS, if the EU carbon price more than doubles, compared to the two preceding years.
The plans are still being negotiated inside the Commission, and could change before they are due to be published next week.
On average, the ETS makes up around 11% of electricity bills for industry in the EU. That has become a flashpoint in recent weeks, as energy prices surge in response to the Iran war, with EU leaders urgently trying to find ways to curb bills.
The price of an EU ETS permit was trading at around 71 euros per metric ton of CO2 on Wednesday, which is around 19% lower than at the start of the year.
Prices have dipped in response to expectations the EU would intervene in the market and as the effects of the Iran war shake European economies, threatening industrial output and therefore demand for carbon permits.
(Reporting by Kate Abnett, Editing by Charlotte Van Campenhout and Alexander Smith)
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