Carbon Prices in Phase III of the EU ETS

The briefing paper contends that carbon prices in Phase III of the EU ETS will likely fall in the lower end of the €20-40/tCO2 range, contradicting higher projections from the European Commission and other modelling studies. The author bases this on historical evidence showing that costs for environmental regulations—such as CFC phase-outs and sulphur dioxide trading—are consistently overestimated. The analysis highlights that current models often fail to account for the synergy between the EU's carbon cap and its other policy pillars, specifically the 20% energy efficiency target and renewable energy directives. Furthermore, the document notes that the 2007-2008 economic crisis, characterized by lower growth forecasts and higher fossil fuel prices, will further depress emissions and carbon prices. The author also points to the potential for a price collapse if the EU increases its acceptance of international credits from the Clean Development Mechanism (CDM).

• Historical data on environmental policies indicates a consistent pattern where actual costs are significantly lower than initial projections. Examples include the CFC phase-out, where costs were roughly one-third of estimates, and US sulphur dioxide trading, where costs were between one-half and one-third of projections.
• The author predicts that carbon prices in Phase III of the EU ETS will likely be in the range of €20-40/tCO2, specifically leaning toward the lower end of that range, which is lower than the European Commission's estimate of prices rising from €26/tCO2 in 2013 to €39/tCO2 by 2020.
• EU ETS modelling often fails to integrate the impact of the EU's 20% energy efficiency target. If this target and renewable energy goals are met, they could potentially deliver the EU's 2020 greenhouse gas goals independently of the carbon price.
• The economic events of 2007-2008, including the credit crunch and high energy prices, are expected to lower Phase III carbon prices by reducing economic growth forecasts and increasing investment in energy efficiency.
• The availability of international credits, particularly from the Clean Development Mechanism (CDM), poses a risk of price collapse. The EC's own modelling suggests that unlimited flexibility for external credits could drop the price to €4/tCO2 if the EU were the sole source of demand.
• Verification data from 2005 for the EU ETS showed that allowances for 2006 exceeded actual emissions by nearly 100MtCO2, with some non-power sectors showing surpluses of 530% or more.

APA

Grubb, M. (n.d.). Carbon Prices in Phase III of the EU ETS. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2014/11/cs-briefing-paper-phase-iii-carbon-prices.pdf

Chicago

Grubb, Michael. Carbon Prices in Phase III of the EU ETS. Climate Strategies, n.d. https://climatestrategies.org/wp-content/uploads/2014/11/cs-briefing-paper-phase-iii-carbon-prices.pdf.

Wikipedia

{{cite report |last1=Grubb |first1=Michael |title=Carbon Prices in Phase III of the EU ETS |publisher=Climate Strategies |url=https://climatestrategies.org/wp-content/uploads/2014/11/cs-briefing-paper-phase-iii-carbon-prices.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{grubbndcarbon, author = {Grubb, Michael}, title = {{Carbon Prices in Phase III of the EU ETS}}, institution = {Climate Strategies}, url = {https://climatestrategies.org/wp-content/uploads/2014/11/cs-briefing-paper-phase-iii-carbon-prices.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }