Lead lawmaker eyes EU carbon market rules to respond to price spikes

2 minute read

Member of the European Parliament Peter Liese speaks at the UN Climate Change Conference (COP26) in Glasgow, Scotland, Britain, November 11, 2021. REUTERS/Yves Herman

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BRUSSELS, Feb 10 (Reuters) - European Parliament's lead negotiator on an overhaul of Europe's carbon market on Thursday said he was considering changes to rules that allow policymakers to intervene in the scheme if prices rise too fast.

European Union carbon prices soared by around 150% last year and traded at a record 98.49 euros per tonne of CO2 earlier this week.

"We have an unprecedented increase of the carbon price and still the mechanism in [Article 29a] that is designed to keep price shocks out of the system ... it doesn't work," EU lawmaker Peter Liese told a parliamentary committee.

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"So an amendment on Article 29a - a careful one, not exaggerating the issue - could be considered," Liese said. The article should also apply to a carbon market the EU plans to launch for buildings and transport, he said.

Article 29a of the carbon market rules is designed to prevent "excessive" price spikes. It allows countries to add extra permits to the market if the CO2 permit price is, for at least six months, more than three times the average price in the two preceding years, and policymakers conclude this does not reflect market fundamentals.

The article has never been used. Interpretations differ on exactly when it could be triggered, based on the legal text.

"Does it need to reach the trigger price before you start counting the six months, or is it the six preceding months?" said Refinitiv carbon analyst Ingvild Sørhus. "It is not very clear on how it should be calculated."

Liese's remarks confirmed comments posted on his website on Wednesday.

While higher CO2 prices are deemed necessary to meet climate change goals, the recent rise has hiked costs for industry and power plants that must buy carbon market permits to cover their emissions.

Poland and Spain have said financial speculators are behind the rise, and asked Brussels to intervene.

Carbon prices have been stoked by soaring gas prices in recent months, and EU plans to reform the carbon market to curb emissions faster, to meet a goal to cut planet-warming emissions 55% by 2030, compared with 1990 levels.

The reform will be negotiated this year by EU countries and European Parliament.

EU lawmakers have until Feb. 16 to submit amendments to Liese's proposal. After that, the proposal will be put to two votes in parliament, scheduled for May and June, before negotiations begin between parliament and EU countries.

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Reporting by Kate Abnett; editing by David Evans and Jason Neely

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