Carbon Recovers as Germany Open to Talks on Stronger EU Market

  • Permits in EU emissions trading system rise to six-week high
  • German, French environment ministers to discuss carbon April 7

European Union carbon-dioxide prices rebounded as the German environment ministry said it is willing to consider measures that would strengthen the European Union’s emissions trading system.

Prices in the world’s biggest cap-and-trade carbon program rose as much as 2.1 percent to 5.35 euros a metric ton, the highest level in six weeks. They are still 34 percent down this year amid a persistent oversupply of permits to pollute. The market failed to draw support from the global climate deal reached in Paris and and EU agreement to introduce in 2019 the Market Stability Reserve, a tool which will help limit the glut of allowances.

“From our point of view, the central mechanism of emissions trading -- control over the amount of certificates -- is to be maintained,” said Michael Schroeren, chief spokesman for German Environment Minister Barbara Hendricks. “With the MSR, we’ve sealed a reform that conforms to this principle. Germany is however fundamentally open to a discussion whether additional measures may possibly be needed -- and in which timeframe.”

His comments follow a push by French Environment Minister Segolene Royal for a carbon price corridor that would boost the cost of pollution and encourage investment in low-emission technologies. France, where envoys from more than 190 nations reached a deal in December to fight global warming, holds the presidency over United Nations climate talks until November.

Royal on Monday directed Engie SA Chairman Gerard Mestrallet, WWF France director Pascal Canfin and economist Alain Grandjean to work on options to guarantee more robust emission prices in the EU ETS, identify conditions that will facilitate the introduction of a carbon component in industries not covered by the cap-and-trade program and analyze a floor price for electricity production.

Hendricks and Royal will discuss issues including the EU carbon market on April 7, when they meet in Metz, France, during consultations between the two governments, Schroeren said.

EU carbon allowances for delivery in December were 1.7 percent up at 5.33 euros on the ICE Futures Europe exchange as of 8:54 a.m. in London.

‘Market Distortions’

“They should just replace EU allowances with a fixed carbon tax and be done with it,” said Elchin Mammadov, an analyst at Bloomberg Intelligence in London. “Instead, they’re overcomplicating the whole system by introducing market distortions, such as caps, floors, reserves, etc. This creates more problems than it solves. It also doesn’t give a long-term visibility to the investors.”

Germany, Europe’s biggest emitter of carbon dioxide, is struggling to stay on track to meet its target of cutting the greenhouse gas by 40 percent by 2020 compared with 1990 levels. The country had reached 27 percent by last year, the Federal Environment Office said in January.

The 1,900 German power plants, factories and other units in the EU ETS reduced their emissions by 1.2 percent last year, the office said Monday. The carbon market, Europe’s flagship climate tool, imposes decreasing emission caps at more than 11,000 sites owned by utilities and manufacturers.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE