Changes to the EU ETS Get the Go Ahead

Saturday, February 28, 2015

MEP’s have voted to reform the existing European Union Emissions Trading System (EU ETS) as a part of wider measures to stabilise the EU carbon market.

The European Commission had previously indicated a review and reform of the scheme in 2021, although several Member States, including the UK, had called for market-stabilisation improvements to commence earlier. The Commission has agreed to implement reforms to the EU ETS by the end of 2018 which will include a Market Stabilisation Reserve (MSR).

The EU ETS was first introduced in 2005 as the world’s first greenhouse gas emissions trading scheme and continues to form a major pillar of EU Climate Policy. The scheme requires more than 11,000 energy-intensive installations across Europe to buy emissions allowances which they can trade with one another as needed. Each year participating organisations must surrender enough allowances to cover all of their emissions, thus encouraging participants to reduce their energy use and associated greenhouse gas emissions.

Since 2009, however, the EU ETS has experienced a growing surplus of allowances and international credits compared to emissions, which has significantly weakened the carbon price signal.

Under the new agreements millions of ETS allowances will be withdrawn from the market and placed in a reserve in an effort to increase their value and drive further reductions in the generation of emissions. MEP’s are also supporting a proposal to prevent 900 million allowances withdrawn last year under the Commission’s ‘backloading’ mechanism from re-entering the market in 2019 as had been originally planned.

It is hoped that the planned reforms will stabilise the existing market imbalance, addressing the surplus of emission allowances that has built up and improving the ETS’ resilience to future changes by adjusting the supply of allowances to be auctioned. This stabilising of European carbon prices is also seen as fundamental to encouraging future low-carbon investments and the drive towards low-carbon economies across the EU.

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