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EU member states will extend the bloc’s mechanism to regulate price spikes beyond 2030 in a bid to ensure the carbon price under the upcoming tax on cars, vans and buildings does not spike excessively when the system takes effect in 2028.
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Households and businesses using fossil fuels for heating and transport will likely see higher bills once the new version of the European Union’s emissions trading system (ETS2), or carbon market, comes into full effect, and resistance to the system’s full implementation has been growing.
Slovakia and the Czech Republic have called for the new carbon tax to be delayed until at least until 2030, citing the law’s social impact; on the other side of the argument, Sweden, Denmark, Finland, the Netherlands and Luxembourg signed a joint paper expressing opposition to any delays or amendments to ETS2.
“We are concerned that any further postponement or amendments related to the market-based price of ETS2 would substantially undermine the effectiveness of EU climate policy,” reads the letter dated 18 February seen by Euronews.
The five EU countries argue that ongoing discussions on price stabilisation measures under the ETS2 are undermining the system’s credibility and increasing uncertainty for investment decisions by businesses and households.
The decision to regulate price spikes comes on top of a recent €3 billion frontload by the European Investment Bank meant to address rising energy bills, a response to intense pressure from lawmakers in the European Parliament to ensure that the most vulnerable can cope with the transition.
Amending the Market Stability Reserve
The EU’s long-term tool to address surplus allowances in the EU carbon market, the market stability reserve, is designed to rebalance carbon allowance supply and demand and strengthen the system’s resilience to future shocks.
The extension of the EU’s carbon market to cover road transport and buildings was created in 2023 as part of the bloc’s climate law, with the goal of cutting emissions from these sectors by 42% by 2030, compared with 2005 levels.
The mechanism was due to start in 2027, but it was delayed after lawmakers raised concerns about its social impact.
“The Council’s position on adjusting the market stability reserve – the safety valve of the system – sends a clear signal that the EU is committed to a stable and predictable carbon market,” said Maria Panayiotou, minister of agriculture, rural development and environment of Cyprus, on behalf of the EU Presidency.
The 600 million allowances currently under the bloc’s stability mechanism – roughly equal to ten years of emission-reduction needs – will remain available as a buffer that can be released if the market comes under pressure, the Council said.
Under the current rules, 20 million allowances are released when the carbon price rises above €45 per tonne of CO2, relative to 2020 prices. The changes increase each release by an additional 20 million allowances and allow releases twice a year, meaning up to 80 million allowances can now be added to the market to prevent sharp price spikes.
“These measures further strengthen stability and affordability within ETS2 and set us on a more predictable path toward a low-carbon future. We are setting the right conditions to keep prices in check and intervene swiftly if they go too high,” said Wopke Hoekstra, Commissioner for Climate, Net Zero and Clean Growth.
The position agreed to by the Council will now be scrutinised by lawmakers in the European Parliament, which must approve the final rules before ETS2 starts in 2028.
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