The carbon market and the German Elections

The celebration of federal elections in Germany the last Sunday is one step more to reach a final position on back-loading, the proposal to delay the auctioning of 900 million allowances under the EU’s Emissions Trading System (EU ETS), the EU’s flagship on climate policy. The current oversupply of allowances in the market is estimated at €2 billion and the EU seems to have finally tuned into the idea that the ETS cannot fix itself and that market intervention is needed. This oversupply has caused the drop of carbon prices.

The position of Germany is seen as crucial, since the country controls the most votes in the Council. Chancellor Angela Merkel’s conservative party has won Germany’s election with absolute majority and now she is going to start the hunt for a reliable coalition partner for a new government. A coalition with the centre-left Social Democrats (SPD) is seen as most likely, but she also wants to negotiate with The Greens.

Chancellor Angela Merkel’s centre-right party (CDU/CSU) has expressed cautious support for back-loading. She has said that although there was opposition to back-loading in Germany, the oversupply in the EU ETS has to be addressed to favor cleaner generation. But the CDU/CSU wants to slow the growth of renewable power.

The key opponent of the back-loading proposal was FDP party, the coalition partner of the governing CDU/CSU until now, but it has failed to reach the 5 percent hurdle to remain in the Bundestag. So, if there is a coalition between CDU/CSU and SPD or The Greens, it is very likely that Germany supports the back-loading measure. The SPD and Merkel’s CDU have also voiced support for raising the EU’s carbon reduction target for 2020 to 30%, up from the current 20%.

Now, we have to wait what EU member states decide. But one thing is clear: the EU ETS has to be fixed.

Rosa Brosé

ALLCOT