EU suggests a 'soft price cap' for the ETS before the third quarter.

A "soft price cap" for the EU's emissions trading system (ETS) may be introduced before the overall ETS review set for July, according to EU climate commissioner Wopke Hoekstra. However, he emphasized that there is significant uncertainty regarding the timeline.

According to Hoekstra, the EU intends to address the ETS' market stability reserve (MSR) and benchmarks in the upcoming months before the planned ETS review in June-July, as these aspects are "intellectually" simpler to reform. He mentioned this during a gathering of EU climate and environment ministers.

The MSR was implemented in January 2019 to address the oversupply issue within the EU ETS. It manages the difference between 833 million and the total number of allowances in circulation (TNAC) if the TNAC is between 833 million and 1.096 billion, or 24% of the difference if the TNAC exceeds this range. If the TNAC drops below 400 million, the MSR would release 100 million allowances into the system. A review of the MSR is scheduled for July, coinciding with the broader EU ETS review.

Hoekstra stated that it's "hugely important" for the EU to continue with the ETS. He praised European Commission president Ursula von der Leyen's suggestion in a letter to EU leaders to utilize the MSR to reduce price volatility in the ETS, adding that avoiding price spikes and instability is essential.

According to Hoekstra, the most significant volatility in the ETS over the past few years stemmed from remarks made during an industry meeting in Antwerp in February. He explained that these comments drastically lowered ETS allowance prices and contributed to the volatility the EU aims to mitigate.

Polish climate and environment state secretary Krzysztof Bolesta argued that exiting the ETS would likely not be advantageous for Poland. He noted that if Poland exempted itself from the ETS charges, EU partners could rightfully cease importing Polish goods. Bolesta mentioned that Poland has benefited from approximately €30 billion ($35 billion) through ETS funds. He also indicated that von der Leyen's letter regarding the MSR has caught Poland's attention, although there are still few concrete proposals.

Bolesta expressed a desire to provide "more time" for industries under the EU ETS by modifying the reduction in the system's supply cap. He suggested that sectors affected by the EU's carbon border adjustment mechanism should be granted free allowances.

Hungary's environment state secretary, Aniko Raisz, asserted that a soft ETS cap must yield "real" results in the markets. Raisz also advocated for excluding gas-fired power plants from the system and extending the free allocation of allowances. Additionally, she requested that the launch of ETS 2, covering road transport and buildings, be postponed to at least 2030. Raisz argued that ETS 2 is not appropriate for achieving climate neutrality, as it is currently set to start in 2028, having already been delayed from 2027 by recent changes to the European Climate Law.

German climate minister Carsten Schneider emphasized that "ETS 1 is the most important price signal" for Germany, the largest economy in the EU. He expressed a desire to make minor adjustments to relieve certain burdens associated with benchmarks, particularly in the chemicals sector. Benchmarks are used to determine free allocations for energy-intensive industries.

Schneider advocated for slightly prolonging the free allocation of allowances and for discussions on how long allocations should continue, suggesting that they be extended even beyond 2039.