EU Environment Committee Votes in Favour of ETS Market Reserve, Advocates Early Start and Inclusion of “Back-loaded” Allowances

The Environment Committee of the European Parliament has voted in favor of a draft law proposing to reform the EU Emissions Trading Scheme (ETS) by reducing the surplus of emission allowances available for trading in order to support the price. They advocated introducing the mechanism early, by the end of 2018, and also proposed preventing the automatic return to the market of a portion of allowances “back loaded” (withheld from the scheme) last year in a separate vote.

1. Background Information

The proposed law shall help to boost the ailing price for EU ETS allowances that is perceived as too low to incentivise investment in green technology. Under the new system a portion of ETS allowances would be automatically taken off the market and transferred it into the reserve if the surplus exceeds a certain threshold. In the opposite scenario, allowances could be returned to the market.

2. Early Start in 2018

MEPs also proposed introducing the Market Stability Reserve early so as to reduce the surplus of carbon credits faster. The reserve would be established in 2018 and take effect by 31 December of that year – instead of in 2021 as proposed by the European Commission. Last December, German Environment Minister Barbara Henricks and thirteen of her European colleagues had advocated for a start in 2017.

3. Add “Back-loaded” Allowances to Reserve

As a temporary fix to support the carbon price, the 900 million credits “back-loaded” from 2014-2016, should not be returned to the market as of 2019, as initially foreseen, but placed in the reserve instead, MEPs said. This proposal reflects demands by Mrs Hendricks and her colleagues made late last year.

4. Energy Innovation Fund

Lastly, MEPs proposed to invest the profits generated by the auctioning of 300 million allowances in a special “Energy Innovation Fund” designed to help industry’s transition to low-carbon technologies.

Source: European Parliament

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