The European Union on Wednesday proposed an adjustment to its Emissions Trading System (ETS) to reduce price volatility, ahead of a broader review later this year. The move comes amid complaints from some member states about high costs for industry.
The ETS, first established in 2005, requires heavy polluters to pay for the greenhouse gases they emit by purchasing allowances, which are capped, auctioned, and tradable. Over the past two decades, supply has exceeded demand, leading to surplus permits, some of which are stored in a reserve or invalidated.
Under the proposed tweak, all unsold permits would now be kept in a “buffer,” and invalidation would be stopped. The European Commission said the measure would better equip the market to respond to potential future supply shortages and price spikes.
“This adjustment allows the EU to better respond to future market developments, including potential tightness in supply in the coming decades,” the Commission stated.
The proposal follows recent statements from Ursula von der Leyen, who promised updates to the ETS, including “a more realistic trajectory” for cutting emissions and extending the allocation of “free emission allowances” beyond the previously planned phase-out in 2035.
Critics of the ETS, including industrial groups, have argued that the system contributes to high energy bills, particularly for gas-fired power plants that must purchase emissions allowances. Concerns have intensified following soaring energy prices linked to the Iran war.
The ETS review is scheduled for later this year, and the European Commission’s proposed adjustment is seen as a step toward addressing both market stability and industry pressures.
