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24th Jul 2021

EU carbon credits drop below €6

  • Steelmakers and other heavy industries have to pay for emitting CO2 (Photo: LarsAC)

The European price for emitting a tonne of carbon dioxide has dropped by around 25 percent in the past month, a development that suggests the EU's flagship climate tool still has a very limited influence on moving industry away from fossil fuels.

The price of the European carbon credits under the EU's Emissions Trading System (ETS) dropped from around €8 to slightly below €6 on Monday (25 January). It has fluctuated around €6 since then.

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The ETS requires industrial companies to hand in a certificate for every tonne of CO2 they emit. The idea is that firms switch from coal, oil, and gas to a cleaner energy source.

However, according to experts, a price of around €30 is needed for the scheme to have an effect on companies. Now, polluting is simply too cheap to work as an incentive.

The ETS price has been low for years, due to a glut of credits, or EU allowances (EUA's), in the market. The economic downturn, combined with a fixed number of new credits being created every year, led the price down.

However, 6€ is still above the record low in 2013, when EUA's were around €3.

Last year, European lawmakers adopted new rules, proposed by the EU Commission, which would introduce a market mechanism into the system.

The so-called market stability reserve will come into effect when a certain number of allowances is available on the market. Once that threshold is reached, the surplus of credits will be put aside temporarily.

However, the market mechanism will not become operational until 1 January 2019. Another commission proposal to reform the ETS, to be discussed this year by lawmakers, deals with the period after 2020.

Low price of oil to blame?

Meanwhile, market analysts say that the recent drop may be due to the low oil price, although direct links are always difficult to prove.

In a positive note for the scheme, the Swiss environment ministry announced on Monday that it had concluded talks with the EU on linking the Alpine nation's own carbon trading scheme to the ETS. The ministry thinks the move "will result in the strengthening of emission trading as an important tool in the efforts to combat global climate change".

“The linking of the schemes will also enable companies and operators in the Swiss system to trade emission rights on the considerably larger and more liquid European market,” the Swiss said in a press release.

Opinion

EU must scrap carbon compensation scheme

One of the main planks of the EU Emissions Trading System rewards polluters and must be abolished, says Peter Eriksson of the Greens/EFA group.

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