"The electricity market has become uninvestable," Hans ten Berge, secretary general of Eurelectric, told Reuters on the sidelines of climate change talks in Doha.
"We have a fragmented EU market. We need a well-functioning Emissions Trading Scheme. We need a framework for sustainable investment in the long term." Eurelectric represents the electricity industry in more than 30 European nations and its board members includes the CEOs of Germany's E.ON and Italy's ENEL.
The body has backed a Commission proposal to prop up the EU's Emissions Trading Scheme (ETS) by removing some of a surplus of carbon permits, but the EU executive's plan has been struggling to get the support of some member states.
The price of ETS allowances hit a record low of 5.61 euros earlier this month.
Ten Berge said the price needed to surge to accelerate the shift to a green economy by making it economic to invest in low carbon energy and removing the need for renewable subsidies. "The carbon price should rise over time from the current level to a magnitude around 100 euros ($130)," he said.
"The advantage of carbon markets is that the environmental goal is achieved at least cost through an efficient allocation of efforts among the emissions sources. The last emitters will pay the most."
Despite it weaknesses, the carbon market is the one investment driver that should still be around after 2020 when the current set of EU green energy targets expires.
So far, there are only non-binding road maps and debate on 2030 policy goals. The European Commission is also pushing for completion of a single energy market with an upgraded grid to integrate more renewable power and improve links across borders, but has said it is not on track to meet a deadline of 2014.
"The song is perfect. The execution lags behind," ten Berge said.
The weakness of the ETS and wider uncertainty is also a problem for developing carbon capture and storage technology, which ten Berge said was vital if the world is to lower its emissions enough to avoid the worst effects of climate change. "It's almost impossible to say we can reach the carbon cuts needed without CCS," ten Berge said.
CCS has encountered public opposition and cost set-backs. The results of a contest for EU funding are expected to be announced this month and an EU source, speaking on condition of anonymity, said it was possible no money would go to CCS in this round after Britain failed to meet criteria and France withdrew a project last week.
Along with other business leaders, ten Berge attended UN talks in Doha, which ended late on Saturday with a flimsy deal to extend the Kyoto climate change pact.
Many in business argue a bottom-up approach is more effective than days of haggling among nearly 200 nations, but ten Berge said both were necessary. "I'm not green. I'm just rational. I'm thinking that we have got a serious problem with CO2 in the world. I want to make as much money as possible. I'm still from the older generation, but I see the tremendous cost of not decarbonising. As a banker or an investor, it's just poor economics," ten Berge said.