Ato gradually reduce CO₂ emissions, a tradable European emissions market, known as “ETS” [Emissions Trading System]), has been in force for around twenty years. It sets an overall emissions cap for certain sectors and allows companies to buy or sell rights to emit.
It is currently the subject of attacks based on well-established arguments in the discourse of industrial lobbies: the price of carbon would be excessive and would weigh disproportionately on the competitiveness of European industry. A more recent argument is added: the high level of prices would be “abnormal”, because it would result not from economic fundamentals, but from speculative phenomena. These attacks are obviously not foreign to the international context.
The carbon price observed on the market is, by construction, the product of the confrontation between the supply of allowances and the demand of the companies and installations concerned. Total supply constitutes the central instrument of European climate policy: the more restricted it is, the stronger the environmental constraint and the higher the equilibrium price.
This supply has been gradually reduced and will continue to be, which explains the trend increase in price. The effect of possible speculative behavior remains marginal compared to the determining impact of the regulatory trajectory. Seeking to lower the price, for example by means of a price ceiling, would simply amount to lowering European climate ambition.
Implicit subsidies
This market has, in fact, demonstrated its effectiveness in decarbonization of the European economy : emissions from subject installations have decreased by approximately 50% compared to their 2005 level. Most of this adjustment comes from the electricity production sector. Not exposed to international competition, it has not benefited from free allocations of quotas, unlike the exposed sectors. For the latter, free allocations amount to implicit subsidies which make the carbon constraint largely painless.
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