French President pushes for an EU carbon floor price

27 September 2017 11:20 Source:ICIS

Yesterday, French President Emmanuel Macron made a key speech about his ideas for the future of the Europe Union in French university la Sorbonne.

Main points

  • In his two hour speech, entitled “Initiative for Europe A sovereign, united, democratic Europe”, Macron presented his long-term project for Europe
    • Full written speech link and shortened English version link
  • On the ecological transition, Macron states that:
    • To foster investment in this transition (transport, housing, industry, agriculture, etc…) a fair carbon must be fixed through two ideas
      • “Significant minimum price within its borders”
        • He mentioned that studies show that prices below €25-30/tonne is not efficient, and that Europe has to go in that direction
      • An EU carbon tax at its borders “to ensure a level playing field between its producers and their competitors”
        • He mentioned that industrials most exposed by globalisation should be on the same playing field as non-EU competitors which are based in regions with less stringent carbon rules

Analysis

  • On an EU ETS carbon price floor
    • Macron´s proposal is in line with what the previous government Holland had pushed for during its presidency but which failed to generate momentum in the Council
    • The novelty here is the fact that Macron specifies the €25-30/tonne level as a general direction
    • As we stated back in May, we expect the Macron government to try to convince Germany and other key EU member states to set such mechanism
      • The German election results could upset that plan as the likely coalition partners of Chancellor Merkel, the Greens and Liberals (FDP) are at odds on the idea of an EU carbon price floor
      • While the Greens support the idea of a domestic carbon price (and are likely to support an EU one), the Liberals oppose a price floor of any kind and anything resembling market interventions
      • In our opinion, at this point, we see the likelihood of an EU carbon price floor gaining momentum in EU talks as low because of the German coalition dynamics
      • With that said, things could evolve should domestic concessions be made between the Greens and the Liberals on the German coal phase out and an EU carbon price floor
      • More information on the dynamics of the German coalition negotiations can be found in our Analyst Update from Monday
    • It is interesting to notice that Macron does not mention anything on a national carbon price floor (potentially on the power sector) originally pushed by the Holland´s government and which, it was speculated, could have had a role in the current French climate plans
  • On an EU carbon tax
    • This new idea is unlikely to gain momentum for two reasons
      • First, carbon leakage rules in the EU ETS already play the role of levelling the playing field with non-EU competitors not facing the same carbon constraints
      • Second, putting tax at EU borders instead of a carbon leakage supporting mechanism is likely to trigger trade wars with other countries
    • The idea of an EU carbon tax is more an idea present to counter balance the idea of increasing the carbon price for EU players, in other words, increase the cost for industry, but protect the most vulnerable.