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The price for an EU Emissions Trading System (ETS) allowance1 fell below €4 today, the lowest since 2013. Despite proposed reforms to the ETS, the carbon market has struggled for years under an enormous surplus of spare allowances depressing prices.

The evolution of the EU carbon price: From a high of €29.20 in July 2008, at lunchtime today the price reached €3.91.

New reforms are due to be decided on by the European Parliament in late 2016.  However, the recent spiral downward in EUA prices suggests carbon market traders have low expectations that the surplus will be tackled. The current reform process, led by British MEP Ian Duncan, has floundered under pressure from Poland.  

 

Sandbag’s analysis has revealed two key fixes for the market after 2020:

  • Parliament must set the market’s ‘cap’ of allowances at the actual level of emissions, rather than an obsolete projection of emissions made a decade ago. By 2020 emissions in Europe will be more than 10% below the planned cap, guaranteeing that a surplus of allowances continues to accumulate.
    See our report: Getting In Touch With Reality (June 2016)

  • Parliament must put a limit on the size of the Market Stability Reserve, which will otherwise rapidly fill with billions of useless allowances. Depending on emissions, the reserve will contain 3.5-5 billion unneeded allowances by 2030, which will steadily return to the market weakening the price.
    See our report: Stabilising the MSR (June 2016)

 

Phil MacDonald, Analyst at Sandbag commented:

“The carbon market is meant to be Europe’s flagship climate policy, and yet it is failing to put a price on carbon. Investments in the transition to clean energy and clean industry will not be made on the back of a carbon price cheaper than a Belgian beer.

The European Parliament could still push for the real reform that can fix the market, and restore a real price signal to greenhouse gas pollution. Only then can Europe back onto the cost-effective trajectory for cutting emissions.

At COP21 in Paris, Europe promised to do more to tackle climate change. This year, MEPs have the chance to deliver.”

 

 

Notes:

1 Each ETS allowance gives power plants or factories in the EU the legal right to emit a tonne of carbon dioxide.

The last time the closing price for an EUA was this low was back in June 2013, when the price reached €3.88. https://twitter.com/TRPC_Climate/status/771645287643254784
Friday at lunchtime the carbon spot price was €3.91, with an eventual closing price of €4.08. The closing price on Monday 5th September was €3.95.
The lowest price (since the ETS began full operation in 2008) was €2.78 on the 17th April 2013. 

3 The Parliament’s influential Environment Committee is set to vote on the reforms on the 8th December 2016.