Two economists from ZEW argue that the upcoming EU ETS revision should not introduce more flexibility at the cost of a weaker carbon price. They say a predictable allowance supply and a credible price signal are more important than adding new mechanisms that could undermine the system. The authors warn that proposals for greater flexibility, such as allowing more banking or borrowing of allowances, could reduce the incentive for emitters to cut emissions. They argue the ETS works best when the price signal is clear and stable, and that targeted support for sectors facing real investment barriers is a better approach than diluting the cap. This is a direct contribution to the debate on EU carbon market design. Anyone following ETS reform or carbon pricing policy will find the core argument worth reading, even if the full text is behind a paywall.
