On Wednesday 18 February, the Member States’ ambassadors to the European Union (Coreper) approved without amendment the proposal for a targeted revision of the market stability reserve for the ‘ETS2’ emissions trading scheme extended to the building and road transport sectors (see EUROPE 13761/2).
By automatically adjusting the number of emission allowances available in the event of price fluctuations, the market stability reserve helps to correct imbalances between supply and demand in the ‘ETS2’ system. The aim of the legislative revision is to ensure greater price stability and predictability, so that the ‘ETS2’ system gets off to a smoother start in 2028.
In practical terms, the stability reserve will be extended beyond 2030. The 600 million allowances held there will remain available for release at a later date if necessary.
Currently, the price control mechanism triggers the release of 20 million allowances when the cost of carbon exceeds €45/tonnes CO2 equivalent (2020 price), twice a year. In total, the amendment allows up to 80 million additional allowances to be released onto the market each year.
Furthermore, the legislative proposal allows for a more gradual and responsive release of allowances from the stability reserve. Currently, when the number of allowances in the system reaches 210 million, 100 million allowances are released from the market stability reserve.
Under the revised legislation, if the number of allowances falls below 260 million but remains above 210 million, fewer allowances will be released. The aim is to avoid sudden, sharp fluctuations in supply and to send a stable price signal to the markets.
The EU Council’s position sends “a clear signal that the EU is committed to a stable and predictable carbon market”, said Cypriot Minister of Agriculture, Rural Development and Environment Maria Panayiotou.
On this basis, the Cyprus Presidency of the EU Council will begin discussions with European Parliament as soon as it has agreed its position.
The aim of the ‘ETS2’ system is to reduce emissions from the sectors concerned by 42% by 2030, compared with 2005 levels. (Original version in French by Pauline Denys)