EU Must Look at Carbon Market Speculation, Denmark Says

The European Union needs to analyze the impact of investor speculation on the world’s biggest carbon market when reforming the program, Denmark’s Climate Minister Dan Jorgensen said.

Permits to pollute in the EU Emissions Trading System jumped to a record 41.04 euros Wednesday, extending their gains to 50% in the past six months. The prospects of stricter climate goals under the European Green Deal and higher prices has lured new financial investors, including hedge funds.

The EU is set to overhaul the ETS later this year to align it with a tougher 2030 emission-reduction goal. The reform, to be proposed by the European Commission in June, will increase the scarcity of pollution permits for the almost 12,000 companies in the program.

“We are looking into probably the need for an adjustment of the ETS for several reasons and one of the things we definitely need to look into is the investment structures and whether or not they are dangerous,” Jorgensen said in an interview.

The pace of the carbon price gains sparked concerns that surging costs will hurt the competitiveness of the bloc’s industries. Those worries have seen renewed discussions among lawmakers on whether the EU should propose measures to limit speculation.

Curbs on speculation “would definitely be part of a necessary analysis before we made adjustments to our system, that goes without saying,” Jorgensen said.

Started 16 years ago, the EU carbon market is the region’s flagship climate policy tool and covers about 45% of its greenhouse gas emissions. It imposes gradually shrinking pollution limits on utilities and manufacturers and also covers CO2 discharges from airlines.

“All in all, a high price on carbon is very beneficial for the green transformation of Europe and the ETS in my opinion probably one of the most effective tools we have in Europe because it is a common European policy instrument, which means we compare on equal terms,” Jorgensen said.To protect companies from relocating to regions with laxer emissions policies, a phenomenon known as carbon leakage, the EU Commission is drafting a measure to impose a carbon imports levy at border.

While it’s too early to say what the outcome of talks among member states about this instrument will be, a discussion on the so-called carbon border adjustment mechanism is necessary, Jorgensen said.

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