The EU should impose a minimum EU ETS price to create more certainty for investors and counter a recent trend that has allowed it to become a “betting shop for policy decisions”, German researchers recommended.

Researchers from think-tanks Mercator Research Institute, the Potsdam Institute, and the Berlin Technical University, examined 29 political events over 2008-2014, and published their findings in the Journal of Environmental Economics and Management.

“In the absence of a clear policy, traders are left to guess what might happen next. In this way, emissions trading has become a betting shop for political decisions,” said Mercator CEO Ottmar Edenhofer, adding that even rumours of changes, whether real or alleged, can trigger price hikes.

“A good countermeasure would be a minimum price for the permits, including the prompt implementation thereof after the ratification of the global climate agreement,” he said, arguing that greater price certainty would allow investors to better plan and to switch more readily to carbon-friendly technologies.

“In that way, emissions trading could finally also contribute to climate protection,” he added.

Edenhofer has long called for price controls to reform the EU ETS, an idea that most lawmakers have so far resisted but that has recently gained high-level support from France.

By Ben Garside – ben@carbon-pulse.com