Why does the EU need a higher carbon price?

» By | Published 13 Mar 2012

At the end of last week EU environment ministers met to discuss how to fix the EU’s emissions trading system (ETS) by raising the price of carbon. The EWEA blog spoke to Rémi Gruet, EWEA’s senior regulatory affairs advisor on climate change, to discover just what the ETS does and why the EU needs a higher carbon price.

What is the emissions trading system?

The ETS is a kind of market that puts a price on carbon emissions. Big polluters – mainly the power sector – are legally required to limit their carbon emissions. If they emit less than their limit they can sell carbon ‘permits’ on the market, and if they emit more they can buy carbon ‘permits’.

What’s the problem with it today?

The carbon emission limits were set before the economic crisis. Because of the crisis, big industry is producing less and so emissions have gone down, making the carbon limit set at the time irrelevant to today’s world. From the end of 2008 the carbon price started to plummet and has not recovered since.

Why do we need a higher carbon price?

A higher carbon price would change the way we produce electricity by making older technologies even more expensive compared to renewables. Older technologies already have to buy their fuel (coal, oil..) and now pay for their carbon emissions whereas for renewables the ‘fuel’ (the wind, sun..) is free and they have no carbon emissions.

What happened at Friday’s EU environment council?

26 EU environment ministers recognised the need for a stronger carbon pricing system – they said the EU should act on the market to reduce the number of ‘permits’ which would boost the carbon price by making ‘permits’ more scarce.

Poland, however – which is 93% reliant on coal for its power –vetoed an EU move to boost the carbon price.

Did anything else happen at the meeting?

Yes, EU ministers also agreed that the EU needs carbon reduction milestones up until 2050 in order for it to reach 80-95% carbon reductions by 2050. Poland disagreed with this too.

What’s next?

Carbon pricing is also being dealt with under another piece of EU legislation on energy efficiency. This legislation requires qualified majority voting and not unanimous as was the case on Friday. So if only one country is against boosting the price of carbon, the law will pass and the EU will move to boost the price of carbon. The Parliament is expected to vote on this in June.