By Bloomberg,Mvannucci2
Copyright bnef
Amending market designs on supply: Most policy levers, such as increasing the cost-containment frequency of the Market Stability Reserve, can lower prices in this decade to €78/tCO2 but also weaken emissions reductions. However, introducing a dynamic MSR supply adjustment reallocates supply rather than simply expanding it could alone lower average prices while reaching the same level of emission reductions as the base case.
Recycling revenue for subsidies: While all ETS II revenue will be used for social climate investments, it is important to secure a proportion for subsidizing electrification options or rebalancing of electricity taxations This could deliver a rapid shift of consumer preferences. Utilising 50% for total revenue for such subsidy could reduce average carbon prices by 2030 to €67/tCO2.
Supporting EU ETS II with other EU policies: Strengthening car and truck emissions standards and building energy performance targets would all ease pressure on EU ETS II to deliver the bulk of emission reductions, lowering carbon prices to €86/tCO2 on average in this decade . However, doubts remain about the achievability of these other targets, particularly as policymakers have already started loosening some regulations.
