EU Member States Challenge European Commission's Assertion of EU ETS Integrity
Several EU member states, led by France, have rejected the European Commission's claim that there are no irregularities in the EU Emissions Trading System (EU ETS). Spain, Poland, Hungary, Latvia, and the Czech Republic have joined France in raising complaints during the EU Council summit, where leaders also struggled to find common ground in addressing the ongoing energy crisis. During the summit, Poland and the Czech Republic called for references to the EU ETS and upcoming regulations on its green taxonomy in the summit conclusions, but Germany, Austria, and Luxembourg rejected these proposals.
The current gas supply crisis has prompted energy producers to switch to more carbon-intensive coal as a fuel source, thereby increasing the demand for EU Allowances (EUAs). As a result, calls have been made for the European Commission to conduct more rigorous scrutiny of ETS price dynamics, with some suggesting the need for direct political intervention in the market. Disagreements have also arisen regarding the expected rules on the EU's sustainable finance taxonomy. A legal bill is set to be published next week, which will determine whether nuclear power and natural gas can be classified as "green." This classification system aims to help investors combat deceptive environmental claims, known as "greenwashing."
While a large majority of EU member states, including France, the Netherlands, Poland, and Hungary, support the inclusion of nuclear power in the rules, environmental groups argue against it, citing concerns about nuclear waste. These ongoing disputes have overshadowed the EU's efforts to address other climate-related legislation. An initial review by the European Securities and Markets Authority (ESMA) and the EU's energy body, ACER, found no evidence of trading irregularities in the carbon market. However, France and the Czech Republic have contested this assessment.
The European Commission maintains that the EU ETS benefits all member states by generating significant revenues from the sale of allowances, estimating windfall profits of at least €11 billion for EU governments this year compared to 2020. It also suggests that only 10-13% of the current energy cost increases can be attributed to the higher carbon price. During the summit, some participants called for a cap on the carbon price to prevent excessive volatility, while others proposed increasing the supply of allowances. Germany expressed support for the EU ETS but also acknowledged concerns about the cost of allowances.
