Artykuł o ECCB dla Energy Post

Artykuł o ECCB dla Energy Post

Artykuł o ECCB dla Energy Post

We wrześniu 2023 r. w nieistniejącym już Energy Post ukazał się artykuł dotyczący Europejskiego Centralnego Banku Węglowego (ECCB) autorstwa naszych ekspertów Roberta Jeszke i Sebastian Lizaka. Poniżej publikujemy jego całościową oryginalną treść.

Tytuł artykułu: Addressing Key Concerns in the Debate Over Creating the European Central Carbon Bank within the EU ETS Framework

The European Union Emissions Trading System (EU ETS) stands at a critical juncture as it navigates the path toward achieving a net-zero Europe by 2050. Amidst this transformation, the proposal to create the European Central Carbon Bank (ECCB) has sparked a range of criticisms. Some critics have raised valid concerns about the feasibility, necessity, governance, and potential drawbacks of such an institution. In this article, we address these concerns and highlight the compelling arguments in favour of establishing the ECBB within the EU ETS framework.

Some experts raise doubts about the feasibility of creating a centralized regulatory body, citing the immense scale and complexity of the EU ETS. They argue that effectively implementing and managing a ECCB could prove challenging. It is difficult to disagree with the last sentence of this critic. Yes – introducing the ECCB will be the real challenge for sure. However, it’s worth recalling that the concept of the ECCB is not without precedent. The EU has a history of successfully implementing complex regulatory bodies, such as the European Central Bank (ECB) which is responsible for EU monetary policy and ensuring price stability. Other examples of big central banks are the USA Federal Reserve (FED), the Bank of Japan or the Bank of China. Within the framework of the EU ETS, the creation of an institution analogous in character and competence to these central banks is seen as a mechanism with the potential to achieve goals such as enhancing the efficiency of carbon markets and facilitating the global transition to a low-carbon economy.

Feasibility concerns can be addressed through careful planning and collaboration, especially given the urgency of the period post-2030, the present debate on the 2040 target, and the imperative to achieve net zero by 2050. The lack of clarity on governance can be resolved through comprehensive discussions and negotiations among EU Member States. By involving key stakeholders and drawing from principles of central bank governance, it is possible to establish clear guidelines and decision-making processes for the institution.

Another argument raised in the discussion about ECCB is questioning the dual functionality of future ECCB – ensuring market stability post-2030 and managing carbon removal units. Experts have also doubts whether replacing the Market Stability Reserve (MSR) with a ECCB is a reasonable step. Answering this critic it is worth to indicate that the need for a ECCB arises from the evolving landscape of the EU ETS. As the market moves toward a net-zero Europe by 2050, and with no allowances expected to be available for purchase on the market by 2040, new challenges and uncertainties will emerge. These include extending the EU ETS to new sectors, integrating the new ETS 2 for road transport and buildings into the existing EU ETS, operating within an increasingly limited market, shifts in hedging strategies, and the effects of CBAM implementation. Our CAKE simulations suggest that the inclusion of new sectors into the EU ETS will lead to an increase in marginal emission abatement costs within the trading system, due to more expensive reduction options available in sectors not currently covered by the EU ETS. For example, the price of CO2 emission in EU ETS can achieve about EUR 440 in 2050 under Fit for 55 scenario or even EUR 1000 if the EU ETS covering all sectors of the economy (One ETS scenario). It is reasonable to expect a significant increase in EUA prices compared to their current levels. Such a scenario presents a considerable challenge for the European economy, which relies on a stable CO2 price environment. From our research perspective, we argue that the establishment of the ECCB could play a pivotal role in effectively managing the evolving dynamics within the European CO2 market. Specifically, this institution could adeptly manage demand and supply volumes, thereby mitigating the potential adverse impacts of price volatility.

In light of these considerations, the necessity of the Market Stability Reserve (MSR) becomes subject to scrutiny, particularly given apprehensions about its capacity to release an adequate number of EUA allowances into the market. The recent MSR review indicates that there will be a fixed supply of only 400 million EUA allowances available to market participants. This quantity may fall short of meeting the market’s requirements, potentially exacerbating price instability.

Critics contend that there are significant uncertainties surrounding the integration of removals into the market, suggesting that such decisions should be made through EU policy-making processes rather than by a ECCB. Of course the uncertainties in this case exist. Therefore the ECCB need to provide the necessary flexibility to adapt to changing circumstances. The bank can be designed to work in tandem with evolving EU policy, providing expertise and insights to address uncertainties, ensuring that decisions related to removals are made collaboratively and in alignment with broader climate objectives. We agree that it is essential to carefully consider the types and volumes of carbon removals that could be available for participants in the EU ETS. However, these challenges should be addressed through strict rules regarding quality criteria, baselines, standards and certifications for removals, rather than by the ECCB itself. The role of this institution is to safeguard the stability of the EU ETS, the market, and the overall climate architecture. The ECCB could have the capacity to acquire carbon removals from both European and even potentially in the future, global markets. It could then inject these units into the ETS as demand materializes. In this way, the ECCB could serve as a liquidity provider, ensuring the continued functioning of the EU ETS.

Some experts question the necessity of setting appropriate price targets for carbon allowances without full visibility on the costs of emission abatement. They argue that this could lead to market distortions and investment uncertainties, undermining the effectiveness of the EU ETS. Without full visibility on the costs of emission abatement, setting an appropriate price target could indeed be challenging. Challenges related to EUA price targets can be addressed by conducting thorough economic assessments and leveraging expert input. The ECCB could have mechanisms in place to regularly review and adjust price targets based on data and market conditions, thereby mitigating the risk of price distortions. The role of the ECCB would be to control the market and safeguard situations where technological progress fails to deliver fast enough reductions, leading to soaring carbon prices. At the same time, cheaper options could arise from sectors not covered by the ETS through sinks and removals. Smoothing out price development behaviour would provide EU ETS participants and Member States with greater stability and room for necessary long-term investments. Therefore, the ECCB can be viewed as an instrument designed to uphold stability and liquidity in the CO2 market and could be tasked with overseeing the EU ETS as a whole. This becomes particularly pertinent in a scenario of limited market resources, where the anticipated scarcity of EUAs by the end of the 2030s is expected to introduce vulnerabilities into the market. In such circumstances, the ECCB could play a crucial role in ensuring price stability in strategically important sectors of the EU ETS. It is imperative to proactively address the anticipated price volatility that will coincide with the depletion of EUAs, and the ECCB is well-positioned to effectively manage this challenge.

Critics also argue that delegating important decisions to a ECCB could reduce policy predictability and certainty, essential features of the EU ETS design. We can avoid this by establishing a well-designed ECCB which can enhance policy predictability by providing clear guidelines and stability to market participants. Its transparent decision-making process, based on principles of central bank governance, can provide market participants with confidence in the long-term viability of the EU ETS, ultimately contributing to greater predictability. Up to this point, every mechanism aimed at stabilizing and protecting the European CO2 market from the risks of abuse and speculative activities has not guaranteed right timing and effectiveness (the good example is Article 29a) or leave room for interpretation in terms of their operational methods (similar measures designed to secure price levels in ETS2). The bank guarantees and commits to ongoing and effective market oversight. In an era of uncertainty surrounding fuel supplies and their prices, this can have a destabilizing impact on price behaviour within the EU ETS. As the costs of CO2 emissions rise, this could also discourage the adoption of climate policies within the EU.

While there is skepticism about the actual likelihood of establishing a ECCB in the short term, momentum for addressing climate change is increasing globally. While the short-term likelihood may be uncertain, the need for effective climate policy is undeniable. As the EU ETS evolves and more stakeholders recognize the benefits of the ECCB, political support may grow rapidly over time. It will be challenging to discuss emission reduction levels for 2040, knowing that the costs of reduction will be dramatically increasing. This comes alongside risks related to the pace of technological development, supply chains from outside the EU, and the availability of materials essential for rapid transformation. The European Commission (EC) also recognizes this, indicating that the current focus should be on improving the management of the transformation process and concentrating on the implementation of the massive commitments and plans arising from the Fit for 55 package. This will be a key element in ongoing efforts. Governance is now the ‘sweet spot’ for taking further steps in implementing additional elements of climate policy, such as incorporating removals into the EU ETS. The ECCB concept is not merely a tool – it is a solution designed not only to provide a clear vision of what the EU ETS could look like after 2030, but also to ensure the continued existence of the EU ETS beyond 2030.

In conclusion, the establishment of the ECCB is a forward-looking proposal aimed at addressing the complex challenges of the EU ETS beyond 2030. While criticisms are valid, they can be mitigated through careful planning, transparent governance, and adaptation to changing circumstances. As the urgency to combat climate change intensifies, exploring innovative solutions is essential, and a ECCB can play a vital role in achieving a sustainable, net-zero future.