The Polish Electricity Association (PKEE) urges for a moderate revision of the EU ETS

PKEE also ask for additional mechanisms to prevent uncontrollable price increases in the carbon market

8 November 2021

The Polish Electricity Association (PKEE), representing the largest companies in the power sector, released last week its latest position paper on the revision of the EU ETS and the Market Stability Reserve (MSR). The association expresses its deep concern over a potential  “uncontrollable increase of the EUA prices” due to the cumulative effect of increasing linear reduction factor (LRF) accompanied by a one-off cap reduction and strengthening the MSR.

This summer, the European Commission announced a legislative proposal aimed at revising the carbon market in line with the EU’s more ambitious climate objectives for the EU ETS sectors. To reach the 61% reduction target by 2030 compared to 2005, the Commission wants a steeper annual reduction of 4,2% instead of 2,2% under the current legislation. The new LRF will be combined with a one-time cap adjustment (re-basing) of 117 million allowances.

Furthermore, the Commission also wants to review the existing MSR in order to prevent a continuous increase of the historical surplus of allowances. Still, according to the PKEE, the MSR reform in the context of higher LRF and rebasing the cap, “must provide a buffer in the future”  and therefore a more moderate reform is needed “otherwise, there will be no allowances left before 2040.”

Polish demands to rethink the reform of the EU ETS are long-standing and reflect the fear that more ambitious climate policies will be more costly to implement in coal-dependent member states. Currently, in Poland, PKEE reports that around 50% of the power costs are due to the purchase of emission allowances. “In this context, additional mechanisms preventing an uncontrollable rise in carbon prices are needed”, concluded the association.