A large majority of the European Parliament’s Environment Committee (ENVI) has voted in favour of reforming the EU’s ailing emissions trading system (EU ETS) in 2018 (See the Committee’s press release here). On Tuesday, 57 of the 68 committee members voted to introduce a so-called market stability reserve (MSR), an automatic repository for surplus CO2 allowances in case of oversupply. They also voted to transfer some 900 million tonnes of previously “backloaded” CO2 allowances to the reserve, rather than returning them to the market.
In 2014, prices for CO2 emissions allowances were around 5 euros per tonne - too low to stimulate a reduction in greenhouse gas emissions from Europe’s power sector, the main goal of the trading system. The German and UK governments, as well as utilities like E.ON, have been pushing to introduce the reserve as early as 2017. They argue this would make natural gas - which is less carbon-heavy but currently more expensive than coal - economically viable.
But coal-rich countries like Poland opposed bringing the reform forward. In 2014, the European Commission proposed activating the MSR in 2021. The ENVI’s decision to introduce the mechanism by the end of 2018 will now be subject to negotiations with the Council of Europe, with a final decision by both institutions on the introduction of the MSR expected later this year.
German stakeholders react to the ENVI vote:
“EU Parliament advances reform of emissions trading”
“This is a turning point. After today, the emissions trading scheme once again has a real chance of survival,” said Chrisoph Bals, NGO Germanwatch's political manager. “The new European Parliament is more ambitious when it comes to climate protection than the EU Commission who came up with a very anaemic suggestion for the introduction of a market stability reserve.” However, Germanwatch criticises that the committee only agreed to see the reserve established from 2019 onwards. This means that the EU ETS will not help Germany achieve its endangered 2020 CO2 reduction target.
BDEW (German Association of Energy and Water Industries)
“Hildegard Müller on the establishment of a market stability reserve”
BDEW chairwoman Hildegard Müller: “A functioning emissions trading system is indispensable if we want to achieve our ambitious climate targets in an economically efficient way. It is therefore unfortunate that the Environment Committee of the European Parliament has voted to introduce the market stability reserve no earlier than the end of 2018. The chance to send a strong signal for a quick strengthening of the emissions trading system has been missed. The BDEW has proposed introducing the market stability reserve already in 2017. However, it is positive that the Committee decided to transfer all the backloaded certificates into the reserve. This is important to ensure planning security for companies and for investment in low-CO2 and efficient technologies.”
Energy-intensive Industries in Germany (EID)
“Setback for investment in Europe”
“The energy-intensive industries in Germany (EID) are voicing clear criticism of today’s decision by the Environment Committee of the European Parliament to introduce a market stability reserve (MSR) in 2018 for European emissions trading. […] From the viewpoint of the energy-intensive industries, the MSR is neither reconcilable with emissions trading nor conducive to climate protection."
EID spokesman Utz Tillmann said: “The market stability reserve is a setback for the political acceptance of emissions trading in Europe and for investments. The MSR is not what its name implies. This step makes a functioning market for allowances in Europe unpredictable and could cause high costs for energy-intensive companies, which are impacted the most.”
"As the MSR brings an increase in allowance prices and, consequently, also in electricity prices, the German EID sectors (construction materials, chemistry, glass, non-ferrous metals, paper and steel) could be faced with extra costs of 4.6 billion euros per annum, said Tillmann (who is also director-general of the German Chemical Industry Association VCI)", the EID writes. According to Tillmann, industry highlighted the cost problem in the discussion but this issue was not given sufficient attention. He thinks the Environment Committee’s decision "demonstrates compromise but does not solve the cost problem."
See the full EID statement in English here.
James Murray has compiled further reactions to the vote from European green groups, on Business Green, here.