A coalition for the minimum price
The German climate targets for 2020 could be achievable with a minimum price in the EU ETS. Europe can learn from California and others in this respect, a new MCC policy paper recommends.
An initiative for a minimum price on the European level would be reasonable as in this way carbon leakage could be avoided. Moreover, it would be an important signal for international climate negotiations. If a broad consensus is not possible, a coalition of some EU countries should go ahead, the scientists argue – among them MCC Director Ottmar Edenhofer and MCC group leader Christian Flachsland.
Although there is an allowance cap implemented in the current system, this does not result in sufficiently high carbon prices. If prices remain low for a longer period they must eventually increase drastically to comply with the cap, which decreases over time. However, it is unlikely that policy makers will let this happen. Market participants are already betting on a relaxation of the cap. As a consequence, carbon prices are low and the use of fossil fuel is cheap. Necessary investments in low-carbon assets do not take place at the required scale.
For this reason, a minimum auction price has been implemented in the emissions trading systems in California and the Northeastern states of the US several years ago. The United Kingdom, too, introduced such a minimum price—in addition to the EU ETS. There, it helped phasing out coal.