CARBON CENTRAL BANK

Researchers from the Potsdam Institute for Climate Impact Research and the Mercator Research Institute have proposed an independent European Carbon Central Bank. The institution would issue “clean-up certificates” linking present emissions to obligations for future carbon removal, while managing the supply of certificates in line with European climate targets. Its proposed independence is intended to provide long-term credibility comparable to that of a monetary central bank. No European Carbon Central Bank has been established, and its legal mandate, balance-sheet structure and relationship with the EU ETS remain unresolved.

The EU agreed the Market Stability Reserve in 2015 and began operating it in 2019. The reserve adjusts the number of allowances auctioned under the EU ETS according to predefined thresholds for the total number of allowances in circulation. When the surplus exceeds the upper threshold, allowances are withheld from auctions; when it falls below the lower threshold, allowances can be released. The mechanism demonstrates that a supranational carbon market can operate predictable, rule-based supply management across participating countries. It is not institutionally independent, does not actively target a carbon price and does not issue or purchase removal certificates, so it represents only the market-stability component of a Carbon Central Bank.

California places a portion of its emissions allowances into an Allowance Price Containment Reserve and offers them for sale at predetermined price tiers. The reserve gives the California Air Resources Board a mechanism for releasing additional units when allowance prices rise, providing an operational example of a Regional/State authority managing carbon-unit supply through transparent intervention rules. It demonstrates that reserve functions can be incorporated into an existing emissions market without establishing an entirely separate institution. The reserve contains emissions allowances rather than removal certificates, and CARB is a regulator rather than an independent central bank.

The UK ETS operates both an Auction Reserve Price and a Cost Containment Mechanism. The Auction Reserve Price establishes the minimum price accepted in allowance auctions, while the Cost Containment Mechanism allows the UK ETS Authority to consider interventions following sustained high-price triggers. Together, these mechanisms demonstrate that a national authority can monitor a carbon market and operate predetermined tools intended to contain extreme price movements. The Authority does not function independently of government, manage a balance sheet of removal assets or align the supply of removal certificates with future net-negative targets. The case therefore supports national implementation capability rather than the full Carbon Central Bank model.