Further EU ETS reform details emerge

OREANDA-NEWS. So-called "solidarity" allowances will only be exempt from being put into a market stability reserve (MSR) for the EU emissions trading scheme (ETS) until 2025, according to the final text of a reform package for the scheme.

The main parts of the MSR reform — which is to come into effect in 2019 and include a full transfer of back-loaded and unallocated allowances to the reserve — were announced yesterday evening.

The Latvian presidency of the EU Council debriefed member states through the Coreper committee today on the full details of the MSR deal, including the agreement that the 10pc of allowances distributed to lower income member states — the so-called solidarity allowances — will only be exempt from absorption into the reserve until 2025, rather than 2030 as the EU Council wished.

The reforms also outline that the European Commission, in its upcoming EU ETS review, should consider whether unallocated allowances should be used for addressing the risk of carbon leakage.

And additional language in the agreement states that the same review should consider whether up to 50mn allowances should be used as funding for low-carbon industrial projects.

Only 8pc of the surplus will be transferred to the reserve in 2019, with the 12pc figure originally proposed by the commission applying from 2020 onwards.

UK non-governmental organisation Sandbag calculates that the reserve could be populated by as many as 2.2bn allowances — including back-loaded and unallocated volumes — by the end of 2020.

The draft law implementing the reforms will need to be confirmed by EU member states and the European Parliament before coming into force.

The MSR reforms will now be voted on in the parliament's environment committee on 26 May, with a plenary vote scheduled for 6 July, although this could be moved forward. Members of the parliament have widely supported the deal and approval is expected to be a formality.

Coreper is expected to endorse the agreement on behalf of the EU Council next week and the council will probably officially adopt it during June, although it is too early to specify a precise date.

Analysts Energy Aspects expect the MSR to deliver an average price of €14/t CO2 equivalent (CO2e) in 2018, €18/t CO2e in 2019 and €44/t CO2e over the whole of phase four of the EU ETS (2021-30).