ENVI Committee backs earlier introduction of stability reserve to fix EU ETS

On the 24th February 2015, the ENVI Committee in the European Parliament approved the plans to reform the EU Emissions Trading Scheme (EU ETS) using a market stability reserve, according to Reuters.

A large majority (58-10) voted in favour of an early start date for the implementation of the market stability reserve in 2018. They also voted to transfer 900 million tons of backloaded emissions allowances to the reserve instead of re-entering them into the EU ETS market. Finally, ENVI also committed to the selling of 300 million allowances up till 2025 to finance industrial innovation.

This decision follows the vote on 22 January 2015 in which in the European Parliament’s Industry and Energy Committee (ITRE) were unable to agree the start date of market stability reserve. This decisive vote is crucial to the operation of the EU ETS since the market stability reserve is considered to be the main driver behind the EUA price up to 2030. Marcus Ferdinand, head of Point Carbon’s EU ETS analysis, commented that “Today’s vote shows that the majority of ENVI Parliamentarians are interested in actively contributing to a strengthened EU ETS”, according to Reuters.

Media coverage over the past weeks reveals that the most contentious aspect of the reform is the start date for the implementation of the market stability reserve. The start date originally proposed by EU Commission was 2021. The fact that this date has been pulled back to 2018 sends a clear signal to firms that the European Parliament is committed to strengthening the EU ETS and its commitment to reducing EU emissions. This will incentivize investments by firms in emissions reductions technologies. While this is a welcomed decision, this start date is not as early as some countries (notably Germany and the UK) thought necessary.

On the second key aspect of the agreement, the decision to move backloaded and unallocated allowances directly into the reserve is critical as it prevents hundreds of millions of allowances flooding the market before 2020. This flooding would trigger the deflation of the EUA price and thereby perpetuate the ineffectiveness of the EU ETS in reducing emissions. The decision today has created much-needed confidence in the EU ETS market and hope for the recovery of the EUA price.

According to EU release, the ENVI committee granted Ivo Belet a mandate to start negotiations with member states directly, with a view to achieving a final agreement as soon as possible.


(Image: MEPs vote in favour of a resolution for labelling of meat in processed foods by country of origin, Feb. 11, 2015. Photo credit: © European Union 2014 – European Parliament. Attribution-NonCommercial-NoDerivs Creative Commons license. On Flickr)