Latvian EU Presidency: Council and Parliament Negotiators Agree to Start EU ETS Market Stability Reserve in 2019

Council and European Parliament representatives reached an agreement in principle on the decision concerning the establishment and operation of a market stability reserve (MSR) for the European Emission Trading System (EU ETS), the Latvian Presidency informed. MSR shall start in 2019 and correct supply-demand imbalances due to an surplus of emissions allowances in the EU ETS of about 2.1 billion allowances.

1. Latvian Information on Main Outcome of Negotiations on MSR

The Latvian Presidency summed up the main outcome of the negotiations on MSR as follows:

  • Starting date (1 January 2019):

This is two years later than the German government had advocated, yet two years earlier than the Commission proposed and in view of opposition to an early start by countries like Poland probably the best result possible.

Bloomberg provides the following additional information on the MSR procedure:

Under the deal, the amount corresponding to 12 percent of allowances in circulation would be deducted from auctions and placed in the reserve for 12 months starting each September until the accumulated surplus falls below 833 million, according to two people with knowledge of the matter. In the first year, 8 percent of allowances will be put into the reserve between January and September, said the people, who asked not to be identified, because the meeting was private. … If the excess drops below 400 million, the EU will return 100 million allowances.”

  • “Backloaded” allowances: (the 900 million allowances whose auctioning was postponed from the years 2014-2016 until 2019-2020) will be placed on the market reserve;

This reflects demands by Germany and other states.

  • Unallocated allowances: transferred directly to the market reserve in 2020 and future usage to be considered under wider ETS review
  • EU ETS and MSR review to take into account carbon leakage and competitiveness aspects, as well employment and GDP related issues.

According to Bloomberg, the compromise also envisages a shorter exemption of the extra allowances awarded to some states under the so-called solidarity provision from being included in the reserve. The exemption will last until 2025 instead of 2030 proposed by EU governments, according to Bas Eickhout, member of the Greens group in the European Parliament, the news agency said.

Besides, lawmakers “also agreed to call on the European Commission to consider whether to set up a fund to promote clean energy and innovative projects”, Bloomberg informed.

1. Next Steps

a) MSR

The agreement will have to be endorsed by the Committee of Permanent Representatives on the basis of a consolidated text which will then be formally adopted by the Council at one of its forthcoming meetings, the Latvian Presidency pointed out.

b) EU ETS Overhaul

On Twitter EU Energy Minister Canete called the deal on MSR “very good & fair” and announced that the Commission was putting all its efforts “in getting post-2020 #ETS reform before the summer break”.

Source: Latvian EU PresidencyBloomberg; BDEW

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