Speculators Are Creating Chaos In Europe's Carbon-Tax System

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by Tyler Durden
Friday, Mar 12, 2021 - 02:45 AM

As energy traders brace for higher prices as crude oil prices climb, the European Union is taking steps to reform its domestic market for carbon credits to keep out exporters who don't pay a carbon tax and speculators who are driving up prices and threatening to make the system too inefficient to successfully compete.

On Wednesday, Denmark’s Climate Minister Dan Jorgensen reportedly called on Brussels to reexamine the impact of speculators on the EU Emissions Trading System, where permits to pollute in the EU Emissions Trading System jumped to a record €41.04 on Wednesday, having soared 50% in the past six months.

The rally has drawn in speculators, including hedge funds, who have perhaps been inspired by the "green" revolution that has been embraced by corporations and banks around the world. In particular, American banks have insisted on

According to a description on an EU government website, the ETS is "the world's first major carbon market and remains the biggest one." Launched 16 years ago, the program covers 45% of the bloc's carbon emissions.

The ETS operates in all EU member states, along with Iceland, Liechtenstein and Norway. It limits emissions from more than 11K heavy energy-using operations including power stations, industrial plants and airlines. The market covers around 40% of the EU's greenhouse gas emissions. But in order to push the Continent closer to its goal of being "climate neutral" by 2050, Brussels is planning to overhaul the system later this year.

Jorgensen, the Danish climate minister, said the bloc is "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."

Why is increased institutional involvement in the market such a problem? Well, the pace of increases in the carbon price is causing bureaucrats to worry that these higher prices might hurt the competitiveness of the bloc's businesses. Or rather, heap more pain on these businesses. The more expensive a carbon credit is on the ETS, the more costly it is for industrial businesses to offset their carbon use. Curbs on speculation "would definitely be part of a necessary analysis before we made adjustments to our system, that goes without saying," Jorgensen said.

Higher fossil fuel prices are expected to be a boon for the green energy space. So why aren't higher carbon prices being celebrated by Europe's eco-warriors?

"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.

Well, because they leave European companies vulnerable to being out-competed by rivals based in Australia, and elsewhere, which don't pay any tax on carbon emissions.

To try and protect domestic companies (and prevent them from lobbying against, or leaving, the carbon-tax system) the bloc is also considering imposing new carbon levies on imports from countries that don't have a carbon tax. According to a report in the Australian press, the proposed Carbon Border Adjustment Mechanism would heap more taxes on Australian exports, particularly energy exports.

"They'll no longer put up with free riders," said Australian Institute climate and energy program director Richie Merzian.

"Europe has had a price on carbon for over 15 years now," he said.

With President Joe Biden and the Dems already implementing their 'greenwashing' agenda, might Washington use Europe's push for reform to create a carbon-tax system within the US?