CAKE for EURACTIV: ECCB would help stabilise EU climate policy
Experts from CAKE, Robert Jeszke and Sebastian Lizak, have written an article for EURACTIV titled “Why a European Central Carbon Bank would help stabilise EU climate policy” in which they assess the potential of establishing a European Central Carbon Bank (ECCB) to stabilize EU climate policy.
There is an ongoing debate regarding the level of ambition for emissions reductions in 2040, with some advocating for highly ambitious reduction targets while others emphasize governance, policy instruments, and public support over specific emission targets. Given the challenges in implementing climate policy, a comprehensive governance vision is needed to achieve the goal of climate neutrality by 2050.
The European Emissions Trading System (EU ETS) faces significant challenges as emission allowances issued under the cap are expected to deplete around 2040. Discussions are underway about establishing a European Central Carbon Bank (ECCB) to address this issue. CAKE experts in the article present a vision for creating such a bank that could serve both to manage carbon removal units and regulate the EU ETS market to ensure stability and liquidity in the CO2 market.
Similar to central banks in monetary policy, the ECCB would have an impact on the dynamics of the CO2 market, controlling the supply and demand for emission allowances and stabilizing prices. This could mitigate market speculation and unjustified price increases, enhancing transparency in the decision-making process. The ECCB could potentially replace existing mechanisms within the EU ETS, such as the Market Stability Reserve (MSR) and the mechanism outlined in Article 29a of the EU ETS directive, providing a comprehensive solution that also incorporates carbon removals, simplifying climate policy and helping achieve the yet-to-be-determined 2040 and 2050 climate goals. Choosing the ECCB’s location in Central-Eastern Europe, such as Poland, could balance power distribution within the EU and promote collaboration with neighboring countries, strengthening EU cohesion and incorporating diverse perspectives into climate policy shaping.