The emissions trading dispute: the reform plan has failed: what it means for CO2 certificates | News


Andreas Hohenadl, Euro on Sunday

to meAn economy without emissions – this is what Europe should look like in 2050. But the road to this place is bumpy. This was seen this week when the European Parliament wanted to set a course for the “Fit for 55” intermediate goal. Fit for 55 is the name of a comprehensive legislative package to help reduce greenhouse gas emissions by 55 percent by 2030.

Surprisingly, EU MEPs voted against expanding European emissions trading on Wednesday. They have failed to agree on a proposed reform that would extend emissions trading to buildings and transport. Instead, they sent the law back to a subcommittee. The section on the CO2 border tax was also returned. The aim is to impose a specific climate tariff on imports from countries with less stringent climate goals.

The discussions on emissions trading are unlikely to subside any time soon. Especially that another controversial proposal from the European Commission has appeared. The Commission wants to sell CO2 certificates, which are currently parked in the so-called market stability reserve (MSR). He wants to use the proceeds to promote investments, which will help reduce dependence on Russian energy imports.

A plan that is approved by the industry, but also raises a lot of criticism. One argument is that if IAS allowances are pumped to the market it will lower the price of pollution allowances. This reduces the incentive for industry and the energy sector to invest in climate-friendly technologies. Emission trading, introduced in 2005, is intended to serve this purpose.

Since then, companies in the energy and industrial sectors have to produce a certificate for every tonne of CO2 emitted. Companies can sell surplus certificates on the market. Among other things, the MSR introduced in 2019, which removes certificates from the market in the event of exceeding a certain amount in circulation, causes a shortage of supply.

Watch out for interference

According to the will of the European Commission, from the securities in the IAS, certificates worth 20 billion euro are to be auctioned off, which corresponds to approx. 250 million securities at today’s prices of around 80 euro. Barbara Lambrecht, an analyst for raw materials at Commerzbank, assesses the effects of such a step – if approved by parliament and member states – as rather moderate in purely quantitative terms. “Certificates are not to be launched ad hoc, but gradually until 2026. And the volume is rather small compared to the 2.6 billion certificates that were in the IAS at the end of 2021 ”.

Rather, according to Lambrecht, it is a concern that such action may open the door to further political interventions in the MSR, which will put pressure on the CO2 price. In the longer term, however, he sees that the quotation of emission allowances in the EU is due to a further shortage of supply.

INFORMATION FOR INVESTORS

After the introduction of the trading system in 2005, the price of CO2 emission allowances in the EU remained low for many years. It is only with the growing shortage of newspapers that quotations have jumped and soared, especially in the past two years. Investors with a permanent index certificate gain 1: 1 on the evolution of the price of emission allowances.

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Image sources: petrmalinak / Shutterstock.com, Jo Panuwat D / Shutterstock.com

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