PARIS (Reuters) - A carbon price corridor mechanism with floor and ceiling prices, and an auction system, could help fix the European Emissions Trading System (ETS), in which prices have tumbled due to a glut of permits, according to a proposal by a French committee.
The mechanism is one of several that is expected to be put forward by the government-appointed committee headed by Engie's Chairman and former Chief Executive Officer Gerard Mestrallet, to review European carbon pricing.
France, which currently chairs the United Nations climate negotiations COP21, said in April it would unilaterally set a carbon price floor in the absence of a broader European initiative to strengthen carbon pricing.
World leaders, businesses and international finance institutions have also urged more countries to launch schemes that put a price on carbon dioxide (CO2) emissions.
Mestrallet will present the committee's pre-findings during a high-level forum on carbon pricing in Paris on Friday.
Mestrallet said his committee, appointed by French Environment Minister Segolene Royal in March, had studied carbon price mechanisms in several countries and also held discussions with businesses.
He said the mechanism, inspired by the auction system in North America, involved a carbon price corridor in Europe.
"If the auction price does not reach the minimum defined price, the auction will be canceled and if the price goes above the ceiling price, the certificate will be put in the market and sold at the ceiling price," Mestrallet told journalists.
"This solution seems possible because such as mechanism could be put in place through an EU ETS directive to introduce a floor and ceiling price and also a revision of the current auction rules," he added.
"Also, from a judicial point of view, this mechanism will not lead to a re-qualification of the ETS system as a tax which would require a unanimous agreement of the EU member states, something that would be difficult," he added.
In order to avoid a negative impact on the competitiveness of European industry, Mestrallet said a system that will prevent carbon leakages should also be introduced at the same time.