Europe's carbon market architect warns against heavy-handed reforms

BRUSSELS, April 7 (Reuters) - The European Union should take a light-touch approach to key parts of its carbon market reforms or risk undermining trust in the scheme, a former senior European Commission official said on Wednesday.

EU carbon prices hit record highs of above 44 euros ($52) per tonne of CO2 this week and have risen by more than 40% since EU leaders agreed in December to a tougher emissions-cutting target.

Analysts expect further price rises, with Brussels due to propose a major overhaul of the carbon market in June, designed to cut emissions faster this decade.

Jos Delbeke, a former senior EU climate policymaker who led the development of the carbon market, said on Wednesday the Commission should resist radical changes to a key part of the scheme: its market stability reserve (MSR).

“I would say, don’t spoil the game. Because if you are too radical in your review of the market stability reserve, you may kill the confidence that the market is showing today,” he told an online event organised by the Florence School of Regulation.

The MSR is designed to avoid a build-up of excess permits in the market, which could depress EU carbon prices. When there are more than 833 million spare permits in the market, the MSR removes 24% of them each year.

It will remove 12% each year from 2024.

Delbeke said the EU should consider maintaining the MSR removal rate at 24%, but that reducing the 833-million-permit threshold could cause problems for companies seeking permits to hedge their carbon exposure in future.

The EU carbon market caps the amount of permits in the system and reduces the cap each year to ensure emissions covered by the scheme keep falling. The Commission has said a key part of the upcoming reforms will be to reduce the cap at a faster rate, to cut emissions faster.

Brussels has also mooted the idea of introducing a minimum carbon price, an idea supported by France and Germany. Delbeke said this could set the EU on a “difficult political journey”, and would struggle to get support from EU countries.

$1 = 0.8413 euros Reporting by Kate Abnett