European Parliament votes to create emission allowance reserve

The European Parliament’s Environment Committee has voted to adopt a market stability reserve (MSR) to boost weak prices in the European carbon market.

The EU’s executive body, the European Commission, had proposed an MSR to come into place in 2021. But the European Parliament has voted for the reserve to come into force three years earlier than the Commission’s recommendation, towards the end of 2018. The aim of the MSR is to hold back emission permits from the EU Emissions Trading Scheme (ETS) when permits are abundant and carbon prices are low – a means of boosting the price of permits and stimulating action on emissions.

The reserve is predicted by carbon market analysts to boost European market prices to between €17 and €35 per tonne. If the vote is ratified by European Member States, allowances that are currently backloaded (a temporary measure to boost prices in the short term) would be transferred into the reserve rather than being put back into the market. In addition, 300mn unallocated allowances would be gradually made available to break-through industrial innovation projects.

On the decision, EURELECTRIC Secretary General Hans ten Berge said: ‘If this date is confirmed by Council, the current oversupply will only be eliminated around 2023 – eight years from now. This is too late: stronger action is needed to generate a carbon price that is relevant to companies’ decisions today.’ 

EURELECTRIC is arguing for policymakers to bring the implementation of a reserve forward to 2017. Point Carbon pointed out that the creation of an MSR should act to increase revenues for Member States, rather than the opposite – which some Eastern European countries that are arguing against the proposals are concerned about.

A statement from the European Wind Energy Association (EWEA) said: ‘MEPs have balked at the chance for swift reform of the ETS. Instead they have decided to wait four years before taking action on a glut of carbon permits that is swamping the market today. Ultimately, this is suppressing the carbon price and delaying Europe’s efforts to move toward a low carbon energy mix.’