An EU summit is getting underway in Brussels. Among the topics on the agenda is the Emissions Trading System (ETS), which, according to many governments, requires urgent reform. Heads of government and state leaders are accelerating their actions in response to the tense situation in the Middle East.
Although the European Council summit was originally intended to focus on how to build the competitiveness of the EU economy, the meeting will instead address how to save it in light of rising energy prices. The issue gained urgency following the attack by the United States and Israel on Iran, which triggered an increase in energy commodity prices on global markets.
Some EU countries, including Poland, want Brussels to respond quickly. On Wednesday, the leaders of 10 EU member states called on European Commission President Ursula von der Leyen for a “comprehensive review” of the ETS system, including extending the period of free allowances, which are currently set to expire in 2034. The letter was signed by the leaders of Italy, Austria, Bulgaria, Croatia, the Czech Republic, Greece, Hungary, Slovakia, Romania, and Poland.
Urgent Need for Lower Energy Prices
The signatories are calling for measures to mitigate the impact of ETS on electricity prices and to reduce the risk of volatility in carbon emission prices, including extending free CO2 emission allowances beyond 2034.
“No one is saying that the ETS system does not work. It simply was not designed for the times we are living in now. The world has evolved faster than the system,” one EU diplomat told journalists in Brussels.
The draft conclusions of the summit include a call for the European Commission to urgently present “concrete actions aimed at reducing electricity prices in the short term, taking into account the differing situations in individual member states, while preserving long-term investment signals for renewable and low-emission energy production.”
For Poland, the provision on the differing situations across member states is particularly important.
A Difficult Topic: ETS
Diplomats do not hide that the issue of reforming the ETS system may be difficult, as some countries are satisfied with how it functions. Revenues from the system also feed into national budgets, and some countries have already planned how to spend these funds.
European Commission President Ursula von der Leyen informed leaders on Monday that she would present a proposal concerning the Market Stability Reserve (MSR), focusing on its ability to correct imbalances between supply and demand in the carbon allowances market. Reform of the MSR, which is easier to implement than a full review of the ETS system, is expected soon. Meanwhile, although ETS reform is scheduled for July, 10 countries, including Poland, urged the European Commission on Wednesday to accelerate the process.
Leaders will also consider other short-term solutions, such as introducing a gas price cap, which was applied in 2022 following Russia’s full-scale invasion of Ukraine. Von der Leyen said on Monday that such a solution is possible, but the European Commission will separately assess the validity of introducing such mechanisms at the national level to limit the impact of high gas prices on electricity.
An EU diplomat noted, however, that gas prices are still not extremely high. “Today they are still hovering around 50 dollars. In 2022, they rose to 350 dollars, and under the so-called Iberian mechanism applied in Spain and Portugal, the cap was set at 180 dollars. So we are talking about different orders of magnitude,” he emphasized.