The EU, California and Quebec Carbon Markets are Aligning; European Floor Considered; China Ramps Up (5)

–Published Options Suggest that the EU, California, Quebec Carbon Markets Are Aligning in Shift to Efficient Multilateral Climate Action

By Mathew Carr

July 14-16, 2021 (LONDON): The European Union carbon markets could align with similar systems in North America, according to options published by the European Commission July 14.

The EU has an option for a “short-term response mechanism” in its market, the world’s biggest, from 2024 — an auction reserve price that would act like a floor.

The news comes as Kamala Harris will hold talks with German Chancellor Angela Merkel at the vice president’s residence on Thursday, and it’ll be the first time Harris has hosted a foreign leader at the Naval Observatory since she took office, AP reports. Merkel will go on to meet Joe Biden and other officials to discuss climate change and the Nord Stream 2 gas pipeline from Russia to Germany.

On Friday, China started its carbon market officially, which will overtake the EU system to become the world’s biggest. So the three biggest climate beasts might be aligning.

See this:

And this:

Even Russia is on board?


I’m probably too hopeful about global climate cooperation, but you never know.

The EU’s commission this week made a bundle of proposals to achieve a 55% reduction or more of EU emissions by 2030 vs 1990 levels. Member states now will consider the proposed measures and options.

See this on Europe’s carbon market: Option MSR3 introduces an auction reserve price, as an additional short-term response mechanism. The Market Stability Reserve in its current structure is not meant to address short term volatility and disturbances. In particular when carbon prices were low, different groups of stakeholders have asked the Commission to look into the possible implementation of a carbon price floor. Under this option, on top of the changes brought by MSR1 or MSR2,
a minimum price level would be set at a fixed or dynamic level. If the clearing price of an
auction does not reach this level, the auction is cancelled, and the auction volume would
be added to the MSR instead. The level of this price would be set at 25 euros to begin
with, with annual increases of 3%.

Canada including Quebec and California are using carbon floor prices and International Monetary Fund staffers have suggested them for the G20; they may reduce the need for a carbon border adjustment mechanism (CBAM) in the EU:

Indeed, California’s carbon market has a similar system. See this:
The California Regulation includes a self-ratcheting mechanism during periods of low
demand for allowances. If California state-owned allowances have remained unsold for
more than 24 months, they are transferred into the Allowance Price Containment

The California reserve price is currently $17.71 per ton, or about 15 euros. EU carbon permits fell 0.9% to 52.40 euros a ton July 14 on ICE Endex.

Meanwhile: Regulators will probably absorb allowances from the EU carbon market more urgently from 2024, in a move that could also align the system with its North American counterparts, according to options published by the European Commission published July 14.

A market reserve will pull out 24% or 33% of the total number of allowances in circulation (TNAC) if the TNAC is 700 million tons or more, according to three of the options. That’s a lower level than the current threshold of 833 million tons.

Read: 瑞銀希望美國加入歐洲和中國的氣候平台以形成全球解決方案; UBS Sees U.S. Joining Europe and China’s Climate Platform to Form Global Solution

EU Stability Reserve Options

(Updates with news from Thursday night, Friday morning; earlier clarifies to say options rather than proposals; updates with floor option, California nod)

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