(Bloomberg) -- The European Union’s ambitious plan to reach climate neutrality risks falling victim to the unprecedented spike in natural gas and power prices, Spain has warned.

The government in Madrid called on the European Commission to design procedures that will allow members states to react immediately to price surges, and to adopt measures to prevent financial speculation in its carbon market. The bloc should create a central platform to buy natural gas, boosting its bargaining power, according to a Spanish document sent to Brussels.

“This situation can provoke a backlash against carbon-cutting initiatives, as already seen in France with the gilets jaunes crisis,” the Spanish government said in the document, aimed at triggering a broader debate in Europe and seen by Bloomberg News. “Carbon-cutting policies have been generally understood and accepted in Spain but may not stand a sustained period of abusive electricity prices.”

Spain and the Commission both confirmed the document’s authenticity.

Energy prices are surging to all-time highs in the 27-nation region, as the bloc’s economies rebound from the Covid-19 pandemic. The surge in demand comes amid limited gas imports from Russia and Norway, prompting concerns about inadequate storage levels. At the same time, an EU proposal to toughen climate policies this decade spurred investors’ demand for emissions permits.

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Europe wants to become the world’s first climate-neutral continent under the Green Deal strategy, which led to the adoption of a stricter carbon-cut target for 2030. As part of it, the EU intends to impose faster emissions cuts on companies in its Emissions Trading System, a plan that is luring financial investors into the program and helped to push carbon prices to an all-time high earlier this month.

The number of outside investors in EU carbon futures rose to a record high, BloombergNEF said in a note today, adding that the recent data suggest speculators can move the market, particularly during a lack of liquidity. The region’s cap-and-trade program imposes pollution limits on manufacturers, utilities and airlines.

“A bubble on EU ETS is the last thing we need; EU ETS should be a market for energy and industrial companies,” Spain said in its document. “We are also of the position that the EU ETS trading should not be available to all agents, especially not to speculators with market power.”

 

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