The draft reform encompasses implementing a regulation mechanism, called market stability reserve (MSR), within the emissions trading scheme in January 2019. Experts anticipate that this step will improve the EU ETS – a development that is urgently needed due to the ambitious climate targets of the EU until 2020.
Time and backloading
The market stability reserve is a mechanism to regulate demand and supply of EU allowances. Whenever there is a surplus of emissions certificates, less new allowances will be given out. Once the price increases significantly, new certificates would be released.
„The MSR deal is a historic first in that it sees MEPs and Member States agree to make a Commission proposal more ambitious (usually MEPs fight to beef it up and Member States succeed in watering it down)“, says Energypost.eu. Although: “MEPs and the Latvian Presidency also agreed that so-called “solidarity allowances”, amounting to 10% of the annual total and allocated to certain EU member states in Central and Eastern Europe, would be exempt from the reserve until 2025″, says a EU press release from May 6th.
The MSR also affects the so-called „backloading“. In 2014 the commission had taken 900 million certificates off the market in order to stabilize it. These certificates have not lost their price, though. They were stalled and are supposed to re-enter the market in 2019-20. Now they will be directly transfered into the MSR.
Environmentalists want more, industry wants less
Sandbag stated in a press release that the draft was a step in the right direction, but requested more: “Sandbag calls on Member States to cancel a significant volume of allowances as part of the post 2020 package to be discussed during the rest of 2015.“
Eurofer, the European Steel Association, statet in a press release, it was „seriously concerned over earlier introduction of Market Stability Reserve in 2019“ because of the anticipated increasing price of EUAs: „This will cause EU steelmakers to face even tougher times with regards to their international competitors which do not face similar CO2 costs.“
Eurofer refers to the phenomenon of „carbon leakage“ which has to be largely discussed at the COP21, the climate negotiation which is taking place in Paris in December 2015. Carbon leakage describes the result of companies outsourcing their power plants to countries with low ecological standards compared to stricter political climate conditions in their own countries.
That is why we need to push emission trading schemes further ahead. Some systems work, as is shown by the Canadian-Californian trading scheme that recently even included the transport sector. As long as these options are merely the subjects of discussions, the market stability reserve might at least be a step on the long way for the EU to improve the system by regulatory measures.