The German government is advocating for adjustments to the upcoming European carbon pricing system for heating and transportation, aiming to mitigate potential price shocks and maintain European unity. Environment and Climate Protection Minister Carsten Schneider articulated the rationale behind this push, stating the success of the carbon price hinges on a gradual increase, allowing citizens and businesses sufficient time and opportunity to transition to climate-friendly alternatives.
A joint letter, signed by Germany and 14 other EU member states, sent to the European Commission on June 25th, calls for a swift examination of additional safeguards against potential energy price volatility. Proposed measures include expanding the planned “market stability reserve” to release additional carbon allowances, thus moderating price surges. The possibility of implementing an effective price cap is also under consideration.
The move has drawn criticism from within Germany. The CDU’s Economic Council sharply condemned the proposed alterations, arguing that restricting the functionality of the Emissions Trading System (ETS) undermines climate protection efforts. They insisted the planned implementation of the ETS systems for heating and transportation must proceed as scheduled to ensure the feasibility of European and German climate targets.
While acknowledging valid arguments for introducing a price corridor, prominent ETS expert Michael Pahle from the Potsdam Institute for Climate Impact Research (PIK) cautioned against weakening the system’s effectiveness. He warned that prices negotiated through political compromise could be set too low to deliver meaningful results.
To address this concern, PIK experts propose the establishment of a new, independent institution-akin to a European Central Bank for carbon allowances. This body would be responsible for defining and maintaining a stable price corridor, fostering reliability and predictability within the market. According to Pahle, the benefits of such an institution are readily apparent.