European Parliament adopts CO2 market stability reserve

The European Parliament on July 8, 2015 adopted a reform process for the EU Emissions Trading Scheme (ETS). The reform is intended to reduce the surplus of carbon credits available for trading in order to support the price of the emission rights. The scheme will start operating in 2019.
 
The new law creates a system that will automatically take a portion of ETS allowances off the market and place it in a reserve if the surplus exceeds a certain threshold. In the opposite scenario, allowances could be returned to the market. The surplus of emission allowances, which has been building up in the system since 2009, is estimated at over 2 billion.
 
“The Market Stability Reserve (MSR) is an efficient, market-driven tool that will stabilise our ETS system and thereby save the central pillar of Europe's sustainability and climate policy. MSR is a crucial building block to help ensure that CO2-prices spur innovation in the field of energy efficiency. This reform puts Europe on the right track to achieve its ambition of 40% less CO2-emissions by 2030,” said Ivo Belet (EPP, BE), who steered the legislation through Parliament. The text negotiated with the Council was approved by 495 votes to 158, with 49 abstentions.
 
“For energy-intensive industries (steel, chemicals, glass, etc) achieving less CO2- emissions is a daunting task and requires important investments. We need to ensure sufficient guarantees to these companies to prevent them from delocalising their production facilities to countries outside the EU that have less stringent climate policies (‘carbon leakage’). This will be a crucial element in the next step of the ETS reform which the European Commission will present next week,” added Belet.
 
Under the deal, ‘backloaded’ allowances (900 million allowances withdrawn from the market at least until 2019), will be placed in the reserve.
 
Any remaining allowances not allocated by the end of the current trading phase (2020) should also be placed in the reserve, subject to an overall review of the ETS directive, to be tabled by the Commission this year.
 
The Market Stability Reserve will start operating earlier than initially foreseen, on 1 January 2019, instead of 2021 as proposed by the Commission.
 
Before coming into force, the legislation is to be approved by the Council of ministers in September.