The European Union’s head of climate change policy warned against policymakers intervening in the carbon market on Friday (7 May), after the price of EU carbon permits soared this week to record highs.
EU carbon prices rose above €50 per tonne for the first time this week, boosted by the bloc’s new target to slash emissions faster this decade than previously expected, and increased activity in the market from financial investors.
Analysts expect that goal will stoke further price increases, with Brussels due to propose reforms in July to the EU emissions trading system (ETS), which forces polluters like factories and power plants to buy permits when they pollute.
Frans Timmermans said intervening in the market in response to the price rally would be unwise.
“It’s a market and we should be very, very careful not to intervene because that would create a non-market-based price, and that would absolutely undermine the credibility of the emissions trading system,” Timmermans told an online event hosted by the European University Institute.
Asked about rising CO2 prices, he said: “It’s a market, so who am I to say what’s too high or too low? It’s a market mechanism, but if we want to achieve our goals, I think the price should be much higher than it is even at 50 euros. But that’s up to the market.”
Analysts say CO2 prices need to reach near €100 per tonne to make green industrial technologies like renewable hydrogen fuel competitive with polluting alternatives.
But steep CO2 costs may also stoke political tensions. Previous rapid increases in the EU carbon price led Poland to ask the Commission to intervene. Timmermans is due to meet Polish climate minister Michal Kurtyka later on Friday.
The EU does not set the CO2 price in the market, but EU policies influence the scheme’s supply and demand of permits, which guides the price.
“You influence the behaviour of markets, but you don’t control the markets,” Timmermans said.