EU parliament approves market stability reserve for emissions trading

Parliament has approved an agreement reached with the European council to reform the EU emissions trading system (ETS), through the introduction of a market stability reserve (MSR) mechanism, which will become operational as of 2019.

The ETS allows companies to purchase CO2 emissions allowances, or sell them off if they have any carbon provisions left over. The MSR is intended to ensure more stable prices for these allowances, by reducing the offer if there are too many allowances on the market.

Rapporteur Ivo Belet stressed that, “the market stability reserve is an efficient, market-driven tool that will stabilise our ETS system and thereby save the central pillar of Europe’s sustainability and climate policy. This reform puts Europe on the right track to achieving its ambition of 40 per cent less CO2 emissions by 2030.”

It is also intended to assist business, as “for energy-intensive industries – steel, chemicals, glass, etc. – achieving less CO2 emissions is a daunting task and requires important investments. We need to ensure sufficient guarantees for these companies to prevent them from delocalising their production facilities to countries outside the EU that has less stringent climate policies [in what is known as] carbon leakage”, explained Belet.

Going into detail about the agreement, he said, “the decision includes a specific review of the carbon leakage provisions of the ETS, within six months of its entry into force and the establishment of a new innovation fund for breakthrough innovation projects.”

“This new fund will have 50 million allowances and it will help the transition from the new entrants’ reserve – set up for the third phase of the ETS, with 300 million allowances to stir innovative low-carbon energy demonstration projects.”