EU leaders seek carbon market reforms amid rising energy prices
EU leaders are pressing for a review of the carbon market to reduce price volatility and limit its impact on rising electricity bills.
EU leaders stress the importance of rapid energy infrastructure development to mitigate risks of losing energy-intensive industries amid rising electricity prices.
EU leaders plan to review the carbon market and accelerate energy infrastructure development within the bloc by the end of 2026 to address rising electricity costs.
Briefing summary
The European Union is facing pressure to reform its carbon market due to rising electricity and oil prices, which have surpassed $114 per barrel amid geopolitical tensions. Some EU member states have called for reforms to address carbon price volatility while striving to maintain the EU’s climate agenda.
EU leaders are advocating for accelerated development of energy infrastructure, especially grid systems, to support the integration of renewable energy. This expansion aims to prevent energy-intensive industries from relocating to regions with cheaper carbon costs.
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The move reflects growing political pressure across the bloc to tackle persistently high electricity prices, with oil prices surpassing $114 (around €98) per barrel for the first time since 2022 on Monday amid heightened tensions over the Iran war, which has put both production and shipping in the Middle East under extreme threat.
The ETS is the bloc’s mechanism for making companies pay for their pollution, with the dual aim of reducing emissions and encouraging industry to invest in more sustainable alternatives.
‘Checkmate’ on EU’s carbon market
While several EU countries have called on the EU executive not to change the current system, after fierce pressure from industry and some EU countries, the Council wants the EU executive to review the bloc’s carbon market to reduce volatility in the carbon price and limit its impact on electricity bills.
Still, the EU institution representing heads of state says that it’s key to maintain the ETS’s central role in driving investment and innovation in the energy transition.
However, it’s still unclear what kind of measures the EU will take, but ETS reforms should avoid weakening the declining emissions cap if it wants to maintain its climate relevance.
“The carbon price is anchored to the end-of-year surrendering of credits. If something happens today, even if the market believes it is short-term, the effect will be priced at the end of the year,” Alessandro Armenia, energy analyst at the real-time trade intelligence Kpler, told EU News.
“The best way to remove politics and regulatory impacts is to change the system, from a cap and trade to one that incentivises (pays) those who are willing to decarbonise,” Armenia added.
“Right now, the EU is acting as the policeman, imposing fines on those who do not reduce emissions. Instead, it would be wiser to pay those who want to decarbonise.”
The Council, which represents EU governments, is also pushing for faster development of energy infrastructure, especially grid infrastructure, which is fundamentally important for the massive surge in renewables produced within the EU27 to flow freely without curtailment or congestion.
Expanding electricity infrastructure
However, EU leaders acknowledge that the transition must be managed carefully in the short term to avoid the risk of losing energy-intensive industries to regions with lower energy and carbon costs.
EU governments and the Commission have also been called on to accelerate the expansion of electrification across the bloc while keeping costs under control, a measure that will greatly benefit from improved grid infrastructure.