Analysts at Thomson Reuters Point Carbon have said reforming the European Union’s Emissions Trading System (ETS) before 2021 could add almost 40 per cent to average European carbon prices.
Germany’s environment minister Barbara Hendricks wants the so-called market stability reserve reform to start as soon as 2016.
Reuters Newsagency reports this is five years earlier than the European Commission has proposed, a spokesman for her ministry confirmed.
Ms Hendricks and her counterparts from Britain, Denmark and Sweden urged the bloc to act before 2021 in the first ministerial discussion of the reserve proposal today.
“An early implementation would cause the average 2014-2020 price to rise by around 39 per cent compared to the Commission’s current proposal,” Point Carbon’s Emil Dimantchev said.
He referred to a scenario where reporting an overall surplus of permits on the EU ETS in 2016 would lead to a removal of some permits in 2017 to be placed in the reserve.
That would mean an average permit price of €11.3 over the period, compared to €8 if the reserve was implemented from 2021, Reuters estimates show.
In January, the EC proposed the reserve to help reduce a glut of more than two billion carbon permits that pushed down carbon prices.
Carbon fell to record lows below €5 last year from more than €30 in 2008.
The reserve is aimed at enabling the ETS to adjust better to economic changes by creating a buffer of carbon permits that would hold or release permits depending on market balance.
There is also a so-called back-loading plan where permits are to be temporarily removed from the ETS to help buoy prices.
Regulating around half of Europe’s greenhouse gas output, the EU ETS forces more than 12,000 power plants, factories and
airlines to surrender a permit for every tonne of carbon dioxide they emit.
Power generator association Eurelectric supports the reserve proposal to give utilities a more stable investment outlook.
But the group has warned that a 2021 start could be too late to prevent some governments from imposing more costly and complex national regulations.
“For the ETS to be effective we need to be able to see a path toward prices, which impact operations and capital investment.
“This is more in the order of prices heading for €30 than €7,” said Eurelectric’s Jesse Scott.
Heavy industry association IFIEC, which has expressed concern that higher carbon prices will push power prices higher and hamper economic growth, opposes the reserve plan.
A majority of member states and the European Parliament is needed to pass the proposal into law, and that process could take around two years.
Australia’s current carbon price legislation provides for the current fixed price ETS, which the conservative Liberal-National government is attempting to repeal, to revert to a market based ETS linked to the EU ETS in July 2015.