by Andreas Hohenadl, Euro on Sunday
Ee economy without emissions – this is what Europe should look like in 2050. But the road to get there is bumpy. This was evident this week when the European Parliament wanted to set the course for the interim goal “Fit for 55”. “Fit for 55” is the name of the extensive legislative package that is intended to help reduce greenhouse gas emissions by 55 percent by 2030.
Surprisingly, the EU parliamentarians voted against the expansion of European emissions trading on Wednesday. They failed to agree on a proposed reform that would expand carbon trading to include buildings and transport. Instead, they referred the law back to the subcommittee. The part on a CO2 border tax was also referred back. The aim is to impose a kind of climate protection tariff on imports from countries with less strict climate targets.
The discussions about emissions trading are unlikely to calm down any time soon. Especially since there is another controversial proposal from the EU Commission. The Commission wants to sell CO2 certificates that are currently parked in the so-called market stability reserve (MSR). She wants to use the proceeds to promote investments that will help reduce dependency on Russian energy imports.
A plan that meets with approval from the industry, but also triggers a lot of criticism. If allowances from the MSR are pumped into the market, this would tend to depress the price of pollution rights, one argument goes. This reduces the incentive for industry and the energy sector to invest in climate-friendly technologies. The trading of emissions certificates introduced in 2005 is actually intended to pursue this goal.
Since then, companies from the energy and industry sectors have had to provide evidence of a certificate for every tonne of CO2 emitted. The companies can sell surplus certificates on the market. Among other things, the MSR introduced in 2019, which removes certificates from the market if a certain amount in circulation is exceeded, is causing a shortage of supply.
Beware of interference
From the papers in the MSR, according to the will of the EU Commission, certificates worth 20 billion euros are to be auctioned off, which corresponds to around 250 million papers at today’s prices of around 80 euros. Barbara Lambrecht, commodity analyst at Commerzbank, assesses the effects of such a step – should it be approved by parliament and the member states – as rather moderate in purely quantitative terms. “The 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 MSR at the end of 2021.”
According to Lambrecht, it is more the fear that such an action could open the door for further political interventions in the MSR, which would put pressure on the CO2 price. In the long term, however, she sees the listing of EU emission rights driven by a further shortage of supply.
INVESTOR INFO
After the introduction of the trading system in 2005, the price for CO2 emission rights certificates in the EU languished at a low level for many years. Only with the increasing scarcity of the paper did the listings jump up and have risen sharply, especially in the past two years. With an endlessly running index certificate, investors benefit 1:1 from the development of the price of emission rights.
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Image sources: petrmalinak / Shutterstock.com, Jo Panuwat D / shutterstock.com
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