CAKE on ERSCT Art. 29a meeting

CAKE on ERSCT Art. 29a meeting

CAKE on ERSCT Art. 29a meeting

On February 23, 2022, Robert Jeszke,  head of CAKE, took part in a meeting organized by ERCST entitled “Article 29a EU ETS Directive – EU Measures in the event of excessive price fluctuations“

In January 2021, the EC carbon price raised to 89.42 euros/tons of CO2. One year before, the EU carbon price was 33 euros/tons of CO2. This rapid price increase in addition to the recent energy crisis, has triggered discussions about the possibility of EU authorities to trigger the Article 29 of the EU ETS Directive or at least to revise it. Under Article 29, if for more than six consecutive months, the allowance price is more than three times the average price of allowances during the two preceding years, the Commission shall convene a meeting of the Climate Change Committee. Since the creation of the EU ETS in 2005, the mechanism has not been triggered so far.

Robert Jeszke gave a presentation on the design and operation of the only pricing mechanism that is currently available under the EU ETS system – articles 29a of the EU ETS Directive entitled “Art. 29a as potential market safeguard int the EU ETS ”. He explained exactly how the mechanism works, which is mainly based on a pricing algorithm that enables market intervention (e.g. increasing the supply of allowances by 100 mln from the MSR). He presented simulations of two different interpretations of the mechanism, which prove that there is a small chance of activating the mechanism in the future. The low chances of meeting the condition of the pricing algorithm would also apply to Art. 30h (mechanism proposed by the European Commission in a separate ETS2 system for buildings and transport) in the EU ETS. He suggested that the most optimal os a hybrid approach of the current art. 29a in the EU ETS and Art. 30h in ETS2.

The presentation was followed by an interactive roundtable with key stakeholders and decision makers who discussed whether the current EU mechanisms are appropriate to prevent the formation of a price bubble in the EU ETS market and the role of speculation and its impact on entities operating in the EU ETS.

All presentations are available here.