Berlin pushes for a €60 minimum price on EU carbon markets

“If the European Union does not agree on a minimum price, the German government will decide on national measures to ensure that the CO2 price does not fall below 60 EUR/tCO2 in the long term,” the German ministry for economy and climate action said. [EPA-EFE/SASCHA STEINBACH]

This article is part of our special report EU carbon market reform and price stability.

Discounting allegations of speculation on the EU carbon market, Berlin is throwing its weight behind a minimum price of €60 per tonne of CO2, saying it will ensure this through national measures if the EU does not take action.

After prices on the EU carbon market soared in 2021, EU capitals are now seizing the chance for reform as discussions in Brussels continue over the proposed revision of the EU’s Emissions Trading Scheme (ETS) directive.

Many governments are unhappy with the rapid rise of carbon prices, which they accuse of pushing up the cost of electricity.

Among the critics, Poland is pushing for “a profound reform of the ETS system, which will take into account the current situation on the energy market.”

Polish Prime Minister Mateusz Morawiecki even spoke of a “speculative bubble,” a position supported by Spain, Hungary and other Eastern EU governments who fear a voter backlash in the face of rising prices.

Poland calls on EU to remove 'speculators' from its carbon market

Poland has urged the European Union to introduce “control mechanisms” to the bloc’s carbon market and curb financial speculators’ participation in the scheme, the Polish government said on Tuesday (15 February).

Minimum price

Undeterred by critics, the German government, on the other hand, wants to ensure prices are kept high enough to encourage private investments in low-carbon technologies.

“We certainly support the beefing up of the ETS system,” said Patrick Graichen, Germany’s climate state secretary, during a meeting of EU environment ministers in December.

To the German government, a price of around €60 per tonne appears as an optimal middle ground between ambitious climate action and social acceptance. Shortly after it came to power last year, the new German government made its position on this very clear.

“We want a minimum carbon price across Europe,” Graichen said in December.

In comments to EURACTIV, the ministry for economy and climate action now reiterated Germany’s continued support for “an ambitious reform – including a minimum price” for EU emission allowances.

“If the European Union does not agree on a minimum price, the German government will decide on national measures to ensure that the CO2 price does not fall below €60/tCO2 in the long term,” a ministry spokesperson said.

For Berlin, the top priority is to ensure a minimum price signal to drive decarbonisation decisions by the private sector, a position supported by energy utilities and retail companies.

“For more investment security, Germany and the EU need immediate further development of emissions trading with accompanying measures for an investment-relevant CO2 price signal,” reads a 2017 letter by an industry coalition of 52 large companies, including Aldi, Puma and Siemens.

More recently 2021 survey conducted by VKU, the association of local public utilities, found that 69.4% of local utilities saw a lack of planning and investment security as the biggest barrier to Germany’s Energiewende. 56.3% of members cited a reform of carbon pricing as their top priority for the German government.

The speculation problem

Unlike Poland, Hungary or Spain, the German government did not voice concerns regarding alleged speculation on the ETS, reflecting the European Commission’s reluctance to intervene on the market.

After the European Securities and Markets Authority (ESMA) published its report in March, Berlin was ready to put the matter to rest.

“The European Securities and Markets Authority (ESMA) has investigated this and found no evidence of market manipulation,” the climate ministry said.

“However, it recommends increasing transparency in emissions trading. The Federal Government will carefully examine ESMA’s recommendations,” it added.

Not all German politicians are on the same page, though. Peter Liese, a Conservative MEP who is the lead rapporteur on the ETS review in the European Parliament, said the issue of speculation needs to be addressed.

Speaking to journalists last week, Liese cited a recent example where carbon prices rose by 10% on the back of an article published by financial news agency Bloomberg.

The price changed “without any fundamentals changing! That means there is some speculation here,” he told journalists on 11 May. That “nothing should happen is not a satisfactory answer to me,” he said, backing calls from other MEPs to rein in speculation on the ETS.

Liese is from Angela Merkel’s CDU party, and his views do not reflect those of the current ruling coalition in Berlin, which comprises the left-leaning SPD, the Greens and the Liberals.

'Politically-driven' EU carbon market needs more transparency, analysts agree

The European Union’s flagship climate policy instrument, the Emissions Trading Scheme (ETS), needs more monitoring and transparency in order to prevent “speculation about speculation” and restore political confidence in the market, analysts have said.

[Edited by Frédéric Simon]

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