On Tuesday 21 October, in a letter sent to the Czech Environment Minister, Petr Hladík, and to several EU countries, the European Commissioner for Climate Change, Wopke Hoekstra, outlined the various measures envisaged by the European Commission to act on the potential rise in prices linked to ETS2 (Emissions Trading System).
A discussion on the subject also took place during a ‘miscellaneous’ item at the ‘Environment’ Council meeting on the same day.
This letter, obtained by Agence Europe, was written in response to a letter sent by the Czech Republic on 1 July and a non-paper co-signed by 19 countries in June in response to the price uncertainty associated with ETS2, prior to its launch in 2027 (see EUROPE 13667/12).
No postponement proposed by the Commission. At the same time, an initiative launched by Cyprus is calling for the date of entry into force of the mechanism to be postponed until at least 2030. During the discussion at the ‘Environment’ Council, only Bulgaria, Hungary, Slovakia, Estonia and Latvia explicitly mentioned a postponement.
At a press conference, Mr Hoekstra explained that his proposals had been received “very positively” overall.
One of the measures proposed by the European Commission is to strengthen the mechanism for releasing allowances if market prices exceed €45/t CO2, with a top-up to double the volume of allowances to be released onto the market.
80 million allowances released each year. The strengthening of this mechanism is a direct response to a request from the 19 Member States, who wanted the “soft price cap” of €45/t CO2 to be reinforced, “by increasing either the volume of allowances released or the frequency of injections”, which could be achieved by revising the ‘Market Stability Reserve’ (MSR) without reopening the ETS Directive.
The letter also states that the Commission wants to publish a statement specifying that the mechanism will be applied twice over a 12-month period, if triggered.
“Combined, this could release up to 80 million allowances into the market each year in 2027, 2028 and 2029”, explains the letter.
The Commission also wants to increase long-term liquidity and predictability, by holding in reserve all allowances that have not been released by the end of 2030.
In addition, it hopes to “empower additional price stability and predictability, with the reserve’s earlier and smoother intervention in case of lower market liquidity, through gradual injections of allowances into the market by adding a buffer to the lower threshold”.
It is also proposing changes to the Auction Regulation to allow ETS2 auctions to start earlier. This will make ETS2 carbon revenues available to Member States from 2026 for “the financing of investments and support measures to accelerate the adoption of affordable clean technologies”.
Lastly, the letter states that the European Investment Bank is currently exploring a so-called ‘Frontloading Facility’, which would make it possible to pre-finance ETS2 revenues for Member States, “including in support of the Social Climate Fund and national Social Climate Plans”.
Mr Hoekstra pointed out that the official proposal would be unveiled in the coming weeks.
To read the letter: https://aeur.eu/f/j2f (Original version in French by Pauline Denys)