German member of European Parliament Peter Liese suggested on Wednesday that the European Union release permits held in a carbon market reserve if the price of carbon credits rises above certain threshold.
As part of a major reform of the EU Emissions Trading System, Liese plans to improve a mechanism that prevents excessive price growth. According to the package of amendments he filed to the assembly's environment committee, the additional supply would be authorized, if the average permit price for more than six consecutive months is more than double the average for the two preceding years.
Emissions prices in the EU have more than doubled in the past year, reaching a new high in the preceding week amid tighter climate policies and a historic energy crisis. Governments like Poland and Spain have called for combat against speculative investors because of the increase in costs.
Liese proposed in the amendment that if the price-level trigger is activated, the European Commission should be required to release 100 million carbon allowances from the Market Stability Reserve over a six-month period.
According to Liese's revisions, if the price remains high after six months, the commission should hold a meeting with member states to determine whether the increase is justified by changing market fundamentals. If the price development does not align, member states will be forced to make immediate decision to increase supply, such as bringing forward some government carbon permit auctions.
The modifications would result in “moderately faster” EU intervention in the carbon market in the event of price shocks, as stated by the document.
Liese also urged that the European Commission take a measure to provide a transparency mechanism for the EU carbon market once the European Securities and Markets Authority releases its long-awaited report on emissions trading by the end of March. The Emissions Trading System's integrity and openness should be monitored on a regular basis by ESMA, which could provide recommendations for improvement.
Liese's proposals would need a majority vote in the European Parliament and a weighted majority vote from member states to be accepted. In May, the EU Parliament's environment committee will vote on the overhaul of the carbon market, which is the first step in the legislative process.
