The negotiations on the Market Stability Reserve (MSR) have predominantly focused on two key elements, the start date of the reform and the treatment of 900 million of backloaded allowances which were supposed to be reintroduced into the market in 2019-20.
The Environment Committee’s outcome calls for the backloaded allowances to go straight into the reserve before returning into the market and for unallocated allowances not to be auctioned before 2021. What is more, Members of the European Parliament (MEPs) have voted to make funds from the sale of emission allowances available for break-through industrial innovation projects.
This was welcomed as good news by the majority of EU Member States, whose position in the European Council warns that releasing allowances back into the market would “undermine the aim of the reserve to tackle structural supply-demand imbalances” in the ETS.
The reactions to the Environment Committee’s vote for December 2018 as a start date of the reform have been rather mixed. While 31 December 2018 is a significant improvement in comparison to the Commission’s originally proposed start date of 2021 as well as the ambiguous position of the European Council, some see it as a “political manoeuvre” to deflect attention away from the fact that this is a 2019 start date for the MSR. A week before the vote 60 major companies called for a 2017 start date.
Whereas Bellona welcomes the decision for the backloaded allowances to go straight into the reserve, a swifter introduction of the MSR would lessen risks to green investment and EU climate mitigation efforts. Deployment of Carbon Capture and Storage (CCS) has been solely dependent on the carbon price in the ETS. It is a crucial climate mitigation technology and the only available means of attaining sufficiently deep emission reductions in some energy intensive sectors. Its role in solving climate change has been made unequivocally clear in the IPCC’s 5th Assessment Report.
MEPs also voted in favour of the rapporteur on the ETS reform, Belgian Ivo Belet, to being negotiations with the Council in order to speed up reaching a final agreement. A final decision on the reform will require the approval of the European Commission and the 28 EU Member States. The real challenge may be to secure an agreement among the Member States whose positions on the MSR have varied greatly. While the UK, France, Germany as well as a group of 60 businesses have called for 2017 as a start date for the MSR, countries like Poland oppose an ambitious reform of the MSR and are likely to insist on old Council voting rules, i.e. consensus, to apply in reaching a common position.