Abstract
Abstract In Europe’s Emission Trading System (ETS), prices for emission permits have remained low for many years now. This fact gave rise to controversies on whether there is a need for fundamentally reforming the ETS. Potential reform proposals include the introduction of a minimum price for certificates and a market stability reserve (MSR). This is a rule-based mechanism to steering the volume of permits in the market. While preparing the introduction of this instrument, the European Commission hopes to be able to increase and stabilize certificate prices in the medium- and long-term. In this article, we recommend retaining the ETS as it is, rather than supplementing it by introducing a minimum price floor or a market stability reserve. Instead, mistakes from the past should be corrected by a single intervention: the final elimination of those 900 million permits that were taken out of the market in 2014, but would again emerge in the market in 2019 and 2020 (backloading).
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