The spread of the corona virus has meanwhile paralysed all public events and social life across Europe and the world. The effects of this virus have far reaching consequences, creating difficult challenges to our physical and mental health, work and environment.
On top of this, there is currently the fear that due to the pandemic outbreak the political will to tighten the EU’s carbon market in the future will be weakened. The carbon prices in the EU’s Emission Trading System (ETS) is drastically falling by more than 40% over the last month. This is due to a decline in the electricity demand and the shutting down of factories across Europe. Additionally the industry is selling off excess permits in order to ensure a financial back-up to the upcoming economic crisis. The ETS has previously suffered from a major price fall during the 2008 financial crisis that undermined the ETS for another decade. The problem this time is, there are no indicators of when this COVID-19 crisis will slow down or even stop, making it difficult to start the recovery of the economy. The last update of the price of an emission permit was by 14.74 EUR on 23 March falling down from a previous price of 25.50 EUR on 21 February. (Please find here a website that is following and recording the prices of ETS) According to this data platform, the prices will continue to fall but it is unlikely we will see single digits for the emission permits.
After the shock of the financial crisis and when the economy had mostly recovered from it, EU policy makers agreed on several reforms to bring the ETS back to life again, including an introduction of the Market Stability Reserve (MRS) that ramped up the price to almost up to 30 EUR a ton. With the MRS in place, there is hope that it will be easier to deal with the corona virus crisis. Also the EU Green Deal leads to the hope that with the goal to become carbon neutral by 2050 will eventually push ETS prices back up, as environmental requirements will become more stringent in the future. According to the draft Climate Law Regulation, the European Commission is required to come forward with proposals by June 2021 to amend EU climate and energy regulation such as the ETS and national emission targets, in line with a higher 2030 goal. The MSR might also be reviewed.
CEEP stressed, in its response to the roadmap on the Climate Law Regulation, that the ETS is an important tool to provide a robust EU-wide price signal for investment in low-carbon technologies and to ensure the cost-efficient decarbonisation of the EU economy. We promoted for stronger carbon price signals that are meaningful and predictable to spur sustainable investments. Additionally, to increase the emission reductions, all sectors including the building and transport sectors have to tackle their emissions and should be included in the ETS, yet the impacts of this development must still be very carefully analysed.
However, with the economic crisis caused by the corona virus many countries in Europe will start to questions whether it is sensible to continue this expensive strategy to reduce our emissions. Indeed, if many Member States have economic struggles, the willingness to raise the ambitions and to impose higher carbon prices to reduce our emissions will be at stake.