The EU ETS price may continue to be low for the foreseeable future – Should we care? CEPS Policy Insight No 2017/22, June 2017

Elkerbout, Milan and Egenhofer, Christia (2017) The EU ETS price may continue to be low for the foreseeable future – Should we care? CEPS Policy Insight No 2017/22, June 2017. [Policy Paper]

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Abstract

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.

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