Just before Christmas, the EU institutions are once again putting the pedal to the metal during the end-of-year sprint. In the truest sense of the word: After the Commission published its much-discussed gas package last week and the EU heads of state and government once again failed to find a common response to escalating energy prices at their protracted summit meeting, the delegated acts on the EU guidelines on state aid for industry and on taxonomy are eagerly awaited in the coming days.
First, however, observers expect heated debates at today’s meeting of the Environment Council in Brussels. It will be a baptism of fire for Germany’s new Environment Minister Steffi Lemke (The Greens) and BMWi State Secretary Patrick Graichen, representing the German position in Brussels. Chancellor Olaf Scholz has already made it clear that nothing has changed with regard to the energy price crisis as a result of the latest dispute over CO2 pricing. The call for stricter regulation of EU emissions trading is nevertheless likely to influence today’s debate. Lukas Scheid has the details on why such regulation could make sense in view of increasing market speculation.
France is expected to be represented at the Council by Environment Minister Barbara Pompili. Formerly a member of the French Green Party, Pompili is now a supporter of President Emmanuel Macron’s liberal movement “La République en Marche” and has made a remarkable U-turn on nuclear energy. You can read all about it in the Profile.
On Saturday, news reached us from London of the immediate resignation of British Brexit Minister David Frost. Earlier, the EU Commission had announced that it would accommodate the UK in the dispute over the Northern Ireland Protocol and allow deliveries of medicines. More on the Brexit developments over the weekend can be found in the news.
Happy holidays and stay safe,
By now, the EU heads of state and government should have recovered from their extremely difficult EU summit. But the political debate is less rested than ever. During the debate on the energy price crisis on Thursday evening, the situation really escalated. No agreement was reached, and the discussion was broken off.
According to Polish Prime Minister Mateusz Morawiecki, the European Union Emissions Trading System (EU ETS) is responsible for the gas prices that have been rising for months due to the rising CO2 price. Morawiecki even called for the ETS to be suspended until energy prices fall again, as he suspects that financial market speculation is behind the rise in the price of emissions certificates.
A suspension of the ETS is considered politically highly unlikely, although there is support from Hungary and the Czech Republic. Stricter market supervision of emissions trading, on the other hand, has been high on the agenda since the EU summit last week. As with energy prices, the European Securities and Markets Authority (ESMA) could investigate whether price-distorting speculation is indeed leading to higher prices.
So far, however, there have also been headwinds about stronger regulation of the ETS, as high CO2 prices are seen as a positive development in terms of climate policy, and evidence of price-distorting speculation is lacking. “While some actors exaggerate the risks posed by financial speculation, not least because of the political implications of high CO2 prices, others downplay it, which is often politically motivated as well,” says Michael Pahle, an economist at the Potsdam Institute for Climate Impact Research (PIK). Pahle is co-author of a PIK study examining the behavior of financial actors on the ETS and their trading motives.
While the study does not prove that manipulation will lead to a price bubble either, it does highlight risks from new investors. Risks that could become greater in the future if CO2 prices rise even faster due to the further shortage of certificates in the ETS. The number of new financial players has more than tripled in the last three years – including mainly investment funds, the authors write. In order to be able to better monitor whether investors are buying allowances in order to minimize their business risk due to rising CO2 prices, or whether they are deliberately hoarding allowances through large investments in order to drive up the price, the economists advocate improved market supervision.
However, this needs increased data availability and quality, as well as better diagnostics, in order to be able to record and evaluate the new forms of trade more precisely. For example, it would be possible to identify when market shortages occur and whether speculative purchases of certificates affect prices. In addition, it would be possible to know what hedges traders are using for their investments, from which the investment intentions of traders could be inferred.
The PIK economists believe that the data could serve as a barometer for institutional capital inflows into carbon markets, providing insights into traders’ strategies and possible price distortions that regulators would subsequently need to stop. “If we allow speculation to run wild, sooner or later it may undermine the functioning of carbon markets,” says Michael Pahle. Better monitoring and integrated regulation, on the other hand, could pave the way for stricter and more robust CO2 pricing.
Peter Liese, EPP spokesman on environmental policy and ETS rapporteur, can in principle envisage stronger regulation to prevent speculation but warns at the same time that one should not be under any illusions. “Most of the current price increase is not driven by speculation, but there is rightly an expectation among market participants that allowances will become scarcer, and to that extent, the market is working.” The key is to remove barriers to investment so that the price of CO2 falls because emissions fall, Liese tells Europe.Table. He said he had not yet decided whether to include a concrete proposal on monitoring the emissions market in his draft report.
Michael Bloss, environmental spokesman for the Greens in the European Parliament and ETS shadow rapporteur, agrees that a better overview of the data situation is needed. However, he does not call for additional market supervision – that already exists, he says. Bloss simply wants more transparency on the data that is already being collected: “Concrete data on who buys allowances from whom is known to the EU Commission and the national authorities, but they only publish it five years later.” He calls for transactions to be published directly because only then will we know “whether and what regulation might be necessary”.
Bloss considers the attacks on the ETS dangerous and sees the reasons for the energy price crisis not in the rising CO2 price but in the dependence on fossil fuels. However, countries like Poland, whose energy mix still consists mainly of coal, are unlikely to be convinced by this. They want quick solutions that lead to falling prices.
At today’s Environment Council in Brussels, the issue will therefore be hard to avoid. A political debate on the Commission’s proposals to reform and extend the ETS is high on the agenda anyway. While not due to the heated debate and lack of agreement at Thursday’s EU Council, it’s hard to imagine that the current circumstances and demands of some countries won’t influence the debate after all.
For the Greens – which she left in 2017 to join Macron’s party “La République en Marche” – she is a renegade. For the “Macronists”, she often acts too rebelliously and headstrong. Even before her appointment as environment minister in July 2020, opinions about Barbara Pompili differed widely, and even now, the politician is giving rise to debate.
“Will you be the environment minister who approves plans to build new nuclear power plants?” many want to know. A few years ago, Pompili was still railing against nuclear power, which provides over two-thirds of France’s electricity, and was emphatic about the safety loopholes and waste issues. She wanted more than 20 reactors closed by 2025. But whereas in her previous role as secretary of state for biodiversity, it was quite common for her to act against the Macron government’s recommendations, now, with the presidential election drawing ever closer, Pompili seems intent on keeping the Elysée house blessing from going awry: Instead of being outraged by Macron’s announced investments in nuclear energy, she’s watching his back.
The reason for this about-face is not only the extraordinary increase in gas prices but also the result of a two-year study. According to the French electricity transmission network RTE, which published its final report on the future management of energy and electricity on October 25th, electricity demand will increase by 20 percent by 2035 and by at least 40 percent by 2050. In order to cope with this development and at the same time reduce the consumption of fossil fuels, Emmanuel Macron is counting on the construction of mini-nuclear reactors (SMR), as he explained in his speech on November 9th.
“My opinion hasn’t changed, but the circumstances have,” says Barbara Pompili. Only by using renewable energies and nuclear power simultaneously can climate targets be met and long-term security of supply be guaranteed, regardless of foreign resources and prices. Her answer is, therefore: “I will be the environment minister who supports efficiency and pragmatism.”
This is a clash. Not only with her earlier stance on nuclear energy but also with her style. Because Barbara Pompili is known less for diplomacy than for making clear statements. The presidential candidate Xavier Bertrand, who is clearly against the construction of more wind turbines, suffers in her opinion from a “blackout”, Eric Zemmour is “in no way justifiable” as a potential candidate for the presidency, male colleagues, who refuse to use the female job title “Madame la Ministre” in the National Assembly instead of the outdated masculine “Madame le Ministre,” she accuses of sexism, and the senators who rejected much of the climate resilience bill last summer, boycotting, for now, her plan to include environmental protection in Article 1 of the Constitution, she calls “climate deniers.” Giorgia Grimaldi
Just before Christmas, the EU institutions are once again putting the pedal to the metal during the end-of-year sprint. In the truest sense of the word: After the Commission published its much-discussed gas package last week and the EU heads of state and government once again failed to find a common response to escalating energy prices at their protracted summit meeting, the delegated acts on the EU guidelines on state aid for industry and on taxonomy are eagerly awaited in the coming days.
First, however, observers expect heated debates at today’s meeting of the Environment Council in Brussels. It will be a baptism of fire for Germany’s new Environment Minister Steffi Lemke (The Greens) and BMWi State Secretary Patrick Graichen, representing the German position in Brussels. Chancellor Olaf Scholz has already made it clear that nothing has changed with regard to the energy price crisis as a result of the latest dispute over CO2 pricing. The call for stricter regulation of EU emissions trading is nevertheless likely to influence today’s debate. Lukas Scheid has the details on why such regulation could make sense in view of increasing market speculation.
France is expected to be represented at the Council by Environment Minister Barbara Pompili. Formerly a member of the French Green Party, Pompili is now a supporter of President Emmanuel Macron’s liberal movement “La République en Marche” and has made a remarkable U-turn on nuclear energy. You can read all about it in the Profile.
On Saturday, news reached us from London of the immediate resignation of British Brexit Minister David Frost. Earlier, the EU Commission had announced that it would accommodate the UK in the dispute over the Northern Ireland Protocol and allow deliveries of medicines. More on the Brexit developments over the weekend can be found in the news.
Happy holidays and stay safe,
By now, the EU heads of state and government should have recovered from their extremely difficult EU summit. But the political debate is less rested than ever. During the debate on the energy price crisis on Thursday evening, the situation really escalated. No agreement was reached, and the discussion was broken off.
According to Polish Prime Minister Mateusz Morawiecki, the European Union Emissions Trading System (EU ETS) is responsible for the gas prices that have been rising for months due to the rising CO2 price. Morawiecki even called for the ETS to be suspended until energy prices fall again, as he suspects that financial market speculation is behind the rise in the price of emissions certificates.
A suspension of the ETS is considered politically highly unlikely, although there is support from Hungary and the Czech Republic. Stricter market supervision of emissions trading, on the other hand, has been high on the agenda since the EU summit last week. As with energy prices, the European Securities and Markets Authority (ESMA) could investigate whether price-distorting speculation is indeed leading to higher prices.
So far, however, there have also been headwinds about stronger regulation of the ETS, as high CO2 prices are seen as a positive development in terms of climate policy, and evidence of price-distorting speculation is lacking. “While some actors exaggerate the risks posed by financial speculation, not least because of the political implications of high CO2 prices, others downplay it, which is often politically motivated as well,” says Michael Pahle, an economist at the Potsdam Institute for Climate Impact Research (PIK). Pahle is co-author of a PIK study examining the behavior of financial actors on the ETS and their trading motives.
While the study does not prove that manipulation will lead to a price bubble either, it does highlight risks from new investors. Risks that could become greater in the future if CO2 prices rise even faster due to the further shortage of certificates in the ETS. The number of new financial players has more than tripled in the last three years – including mainly investment funds, the authors write. In order to be able to better monitor whether investors are buying allowances in order to minimize their business risk due to rising CO2 prices, or whether they are deliberately hoarding allowances through large investments in order to drive up the price, the economists advocate improved market supervision.
However, this needs increased data availability and quality, as well as better diagnostics, in order to be able to record and evaluate the new forms of trade more precisely. For example, it would be possible to identify when market shortages occur and whether speculative purchases of certificates affect prices. In addition, it would be possible to know what hedges traders are using for their investments, from which the investment intentions of traders could be inferred.
The PIK economists believe that the data could serve as a barometer for institutional capital inflows into carbon markets, providing insights into traders’ strategies and possible price distortions that regulators would subsequently need to stop. “If we allow speculation to run wild, sooner or later it may undermine the functioning of carbon markets,” says Michael Pahle. Better monitoring and integrated regulation, on the other hand, could pave the way for stricter and more robust CO2 pricing.
Peter Liese, EPP spokesman on environmental policy and ETS rapporteur, can in principle envisage stronger regulation to prevent speculation but warns at the same time that one should not be under any illusions. “Most of the current price increase is not driven by speculation, but there is rightly an expectation among market participants that allowances will become scarcer, and to that extent, the market is working.” The key is to remove barriers to investment so that the price of CO2 falls because emissions fall, Liese tells Europe.Table. He said he had not yet decided whether to include a concrete proposal on monitoring the emissions market in his draft report.
Michael Bloss, environmental spokesman for the Greens in the European Parliament and ETS shadow rapporteur, agrees that a better overview of the data situation is needed. However, he does not call for additional market supervision – that already exists, he says. Bloss simply wants more transparency on the data that is already being collected: “Concrete data on who buys allowances from whom is known to the EU Commission and the national authorities, but they only publish it five years later.” He calls for transactions to be published directly because only then will we know “whether and what regulation might be necessary”.
Bloss considers the attacks on the ETS dangerous and sees the reasons for the energy price crisis not in the rising CO2 price but in the dependence on fossil fuels. However, countries like Poland, whose energy mix still consists mainly of coal, are unlikely to be convinced by this. They want quick solutions that lead to falling prices.
At today’s Environment Council in Brussels, the issue will therefore be hard to avoid. A political debate on the Commission’s proposals to reform and extend the ETS is high on the agenda anyway. While not due to the heated debate and lack of agreement at Thursday’s EU Council, it’s hard to imagine that the current circumstances and demands of some countries won’t influence the debate after all.
For the Greens – which she left in 2017 to join Macron’s party “La République en Marche” – she is a renegade. For the “Macronists”, she often acts too rebelliously and headstrong. Even before her appointment as environment minister in July 2020, opinions about Barbara Pompili differed widely, and even now, the politician is giving rise to debate.
“Will you be the environment minister who approves plans to build new nuclear power plants?” many want to know. A few years ago, Pompili was still railing against nuclear power, which provides over two-thirds of France’s electricity, and was emphatic about the safety loopholes and waste issues. She wanted more than 20 reactors closed by 2025. But whereas in her previous role as secretary of state for biodiversity, it was quite common for her to act against the Macron government’s recommendations, now, with the presidential election drawing ever closer, Pompili seems intent on keeping the Elysée house blessing from going awry: Instead of being outraged by Macron’s announced investments in nuclear energy, she’s watching his back.
The reason for this about-face is not only the extraordinary increase in gas prices but also the result of a two-year study. According to the French electricity transmission network RTE, which published its final report on the future management of energy and electricity on October 25th, electricity demand will increase by 20 percent by 2035 and by at least 40 percent by 2050. In order to cope with this development and at the same time reduce the consumption of fossil fuels, Emmanuel Macron is counting on the construction of mini-nuclear reactors (SMR), as he explained in his speech on November 9th.
“My opinion hasn’t changed, but the circumstances have,” says Barbara Pompili. Only by using renewable energies and nuclear power simultaneously can climate targets be met and long-term security of supply be guaranteed, regardless of foreign resources and prices. Her answer is, therefore: “I will be the environment minister who supports efficiency and pragmatism.”
This is a clash. Not only with her earlier stance on nuclear energy but also with her style. Because Barbara Pompili is known less for diplomacy than for making clear statements. The presidential candidate Xavier Bertrand, who is clearly against the construction of more wind turbines, suffers in her opinion from a “blackout”, Eric Zemmour is “in no way justifiable” as a potential candidate for the presidency, male colleagues, who refuse to use the female job title “Madame la Ministre” in the National Assembly instead of the outdated masculine “Madame le Ministre,” she accuses of sexism, and the senators who rejected much of the climate resilience bill last summer, boycotting, for now, her plan to include environmental protection in Article 1 of the Constitution, she calls “climate deniers.” Giorgia Grimaldi
