// Par Salomé Robeil //

Let’s start by defining what a carbon market is. To make it understandable, a carbon market is a public financial tool which allows private companies to exchange greenhouse gas emission rights for carbon quotas. Each company which produces too much emissions can buy and pay more credits from companies which emit less than their given quota. The main aim of this system is to motivate modifications of traditional systems of production and so, encourage green investments. Following the Kyoto Protocol, the European Commission created the largest carbon market in Europe : the Emissions Trading Scheme (ETS). Since its creation, the effectiveness of this system has been called into question because of a too low share price. To remedy that situation, several European draft bills propose solutions to strengthen the foundations of that latter.

In 2018, the European Commission approuved a new legislation to serve one purpose : the modification of the quantity of free polluting right allocated to compagnies which are exposed to the « carbon leakage ». But what’s the « carbon leakage » ? The « carbon leakage » concerns companies which adopted policies of relocation to avoid the negative effect of the charge of the carbon price on their competitiveness. Thanks to that measure, the number of that category of companies is decreasing distincly (165 in 2018, 80 in 2019). A readjustment of the « benchmarks », which clusters companies that possess similar parameters of emission, has been planed for 2020 to better define the free allocations of carbon rights and thus, lower the pollution standards. Moreover, since 2018, the European Commission has been steadily increasing the carbon price in order to improve the credibility of that financial market, but also to prepare companies for major changes of 2020. Thereby, according to the advices of the famous economist Stiglitz, the share price is becoming more coercive and now, favours the production of electricity from gas rather than coal. Revenues of quota auctions increased by 150% : that new source of income would potentially constitute future green investments in the coming years.

Another point, the definition of absorption capacity of the MSR (Market Stabiolity Reserve) will contribute to determinate the impact of the EU ETS on the environment. This reserve aims to absorb the excess of carbon-shares to restore a desirable price. According to the Commission, 265 million quotas will be withdrawn from auctions between January 2019 and August 2019, and almost 400 million between September 2019 and August 2020. Moreover, the European Commission would like to include the aviation industry in order to expand its magnitude and complete the 2016 CORSIA programm (Carbon Offsetting and Reduction Scheme for International Aviation) which promotes the use of alternative fuels and particularly palm oil biofuels.

European autorities launched different climatic actions to guide the evolution of that carbon market. For instance, the legislative text « Clean energy package for all Europeans » defines the energitic policy for 2030 : all actors of the system will have to favor the use of renewable energies in the amount of 32% of their global energetic consumption. These regional measures come with national exit plans of coal which support the long-term effect of the EU ETS. 10 European countries have already adopt them (Austria, Denmark, Finland, France, Ireland, Italy, Netherlands, Portugal, Sweden, United Kingdom) and many others discuss the subject currently(Germany, Spain, Hungary).

But today, an external factor threatens the European carbon market : the Brexit. In case of a Hard-Brexit, the UK industries would no longer be obliged to take part in the EU ETS, which would potentially result in an influx of CO2 quotas that would destabilize the balance of the carbon-price and the coercive effects of that latter. Because of that, the European Commission decided to block all auctions until a definive withdrawal agreement. But that measure of prevention prevents the further integration of the European carbon market.

Sources :

https://www.carbonpricingleadership.org/news/2017/5/25/leading-economists-a-strong-carbon-price-needed-to-drive-large-scale-climate-action/

https://www.i4ce.org/download/letat-du-marche-carbone-europeen-edition-2019//HDJC

https://www.ft.com/content/0fa14de4-5f87-11e9-b285-3acd5d43599e/

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