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Parliamentary questions
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1 July 2020
Answer given by Executive Vice-President Timmermans
on behalf of the European Commission
Question reference: E-001835/2020

COVID-19 is a severe public health emergency and a major economic shock to the EU. The Commission is following closely the situation, aware that these are challenging times for the financial markets, including the carbon market.

Owing to the revision completed in 2018, the EU Emissions Trading System (ETS) is more resilient to unforeseen economic shocks. The Market Stability Reserve (MSR), reinforced in this process, addresses carbon market imbalance by adjusting the supply of allowances to be auctioned. If a significant surplus builds up in the market, threatening to undermine the price signal, the MSR will gradually absorb it.

The longer-term outlook for market scarcity, however, remains the key determinant of a carbon price, including due to the increasingly stringent cap. A robust price signal can, thus, be maintained even despite short-term economic shocks. The carbon market response in the last two months is a reflection of this.

It is critical that this long-term signal is maintained also as we recover from COVID-19. The Commission will continue ensuring an appropriate policy response to the pandemic with the European Green Deal at the centre of the EU’s recovery effort. In this context, the environmental ambition of the EU ETS is guaranteed by the annually decreasing emissions cap, and not by the level of the carbon price.

The revision of the EU ETS by June 2021 in the context of the increase of the EU’s emissions reductions target for 2030 will continue to strengthen the system and support market balance to ensure emission reductions are achieved in a cost-effective manner.

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