(Bloomberg) — The European Commission is considering relaxing carbon-permit supply rules and allowing more state aid as part of an emergency plan to cut spiking power prices, according to people familiar with the plans.
The EU’s executive arm is also exploring whether to temporarily ease rules on granting free emissions permits to companies in its carbon market, as well as allowing lower grid fees and energy taxes, the people added, speaking anonymously to comment on the private talks.
The EU’s price of carbon permits dropped nearly 5% after publication, before rebounding slightly.
The commission will present its options, which are still subject to change, at an EU leaders’ summit in Brussels on March 19. The event’s agenda has been overtaken by the unfolding war in Iran, which has disrupted oil and gas shipments and elevated energy prices.
The commission declined to comment.
EU leaders are fretting that the extra costs will further burden companies already straining under energy prices that outstrip those in US and China. Europe’s plans to revive its moribund manufacturing sector, and to get the continent competing globally, are largely reliant on whether officials can lower energy costs.
European natural gas prices have already nearly 60% this month, and markets are preparing for disruptions to continue for months. In further signs of strain to global energy markets, Oman’s key oil export terminal was evacuated and two crude tankers were hit in Iraqi waters this week.
The crisis also threatens to boost inflation at a time when Europe’s economic growth is still sluggish.
While next week’s summit is not expected to produce a final decision on energy measures, leaders will attempt to give the commission marching orders on which proposals to pursue.
Those may include a fast-tracked revision of a carbon market mechanism, which automatically controls the supply of emissions permits. Under this plan, the so-called Market Stability Reserve, which withholds extra pollution allowances from circulation, would be recalibrated to lower the intake rate and reduce short-term price spikes.
The review would not change the overall cap in the EU Emissions Trading System.
Another possibility would be to temporarily soften the criteria for companies to receive free ETS permits, according to the people. Those are granted to industries prone to the phenomenon of “carbon leakage,” where production is relocated to countries with laxer climate policies.
The commission is also considering allowing state aid to reduce energy taxes and grid transmission fees for some industrial users, as well as committing member states to redirect a bigger share of their ETS revenues to help companies decarbonize.
Commission President Ursula von der Leyen has previously said she was considering various options to help slash prices, including better use of purchase power agreements and contracts for difference, as well as exploring subsidizing or capping gas prices.
But von der Leyen has also been clear that while short-term, targeted measures are needed to mitigate energy costs, she does not want to backtrack on the bloc’s green transition plans or to distort the bloc’s single market.
(Updates with carbon price movement in third paragraph.)
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