France Proposes EU Carbon Market Changes to Boost Stability

(Bloomberg) -- France has proposed fine-tuning the design of the European Union’s carbon markets to avoid high prices and volatility.

At a meeting of EU environment ministers on Thursday in Brussels, the country called for bolstering price-stabilization mechanisms in the bloc’s new planned carbon market. It also floated the idea of tweaking some elements of the current Emissions Trading System to ensure more predictability, according to people familiar with the issue.

“We must act swiftly to improve price predictability and the visibility offered to players,” French Climate Minister Agnes Pannier-Runacher said after the meeting. We should introduce “an ETS price corridor, defined in line with the EU’s emissions reduction target.” She gave no further details.

The EU is due to launch the new emissions market, known as ETS2, in 2027, complementing the existing ETS1 market that covers manufacturers, airlines and shipping. Carbon trading is a key tool for the 27-nation bloc to reach its mid-century climate-neutrality target and slash emissions by at least 55% by 2030 from 1990 levels. 

France is concerned that high and volatile carbon prices when the new market is launched could trigger a backlash from consumers and businesses, according to the people, who asked not to be identified commenting on private talks.

The French government advocates a targeted revision of ETS2 price-stabilization provisions before 2027. It could include bringing forward the timeline for the Market Stability Reserve that would absorb or release carbon permits into the market under certain circumstances, the people said. The change would allow early injections in 2027, they said.

The proposal would also extend the duration of the MSR beyond 2031 and revise the trigger-threshold to smooth out price volatility. It would also bolster the soft price-cap mechanism by increasing the frequency of allowance releases. 

Under the current rules, if the price exceeds €45 in the early stage of ETS2, additional permits allowances may be released from the reserve.

To ensure better predictability for investors in ETS1 and avoid a delay in clean investment decisions, France is also set to propose the European Commission produce and publish reference price trajectories. More changes could be considered when the EU revises its carbon market law in 2026, including the introduction of a floor price in ETS1, according to the people.

(Adds comment from the French climate minister in third paragraph.)

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