20 Jun 2017

The EU ETS price may continue to be low for the foreseeable future – Should we care?

Milan Elkerbout / Christian Egenhofer

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Carbon prices in the EU ETS have been low for a number of years and might remain at relatively low levels for the foreseeable future. That does not mean that the EU ETS, or the price signal it produces, is meaningless. Incentives to abate greenhouse gas emissions exist at any price level (it is just stronger with higher prices). This is true even if the impact is different between the power and industrial sectors, partly but not only because of the difference in allocation rules. What the ETS price signal does not drive, however, is long-term investment decisions, which are more a function of price expectations and expected returns on investment.

CEPS Policy Insights offer analyses of a wide range of key policy questions facing Europe. As an institution, CEPS takes no position on questions of European policy. Unless otherwise indicated, the views expressed are attributable only to the authors in a personal capacity and not to any institution with which they are associated.

Milan Elkerbout is a Researcher at CEPS Energy Climate House. Christian Egenhofer is Senior Fellow and Head of the Energy and Climate programme at CEPS.