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03/12/2016

Czechs paving way towards carbon market reform

Climate & Environment

Czechs paving way towards carbon market reform

Belchatow, Poland. February 2012.

[Bilfinger SE/Flickr]

Reform of the EU carbon market may begin in early 2019, after a blocking minority of countries, led by Poland, fell apart. EurActiv Czech Republic reports.

Member states paved the way on Wednesday (29 April) for a second round of negotiations with representatives of the European Parliament and the European Commission on the Emission Trading System (ETS) reform.

Negotiators of the three institutions are set to meet today (5 May) in Brussels.

Hundreds of millions of surplus carbon allowances (EUAs) should be withdrawn from the market and placed into a so-called market stability reserve (MSR). According to the compromise agreement reached last week, the reserve would begin operating on1 January 2019.

Diplomats in the Council of the European Union reached the agreement after the Czech Republic left a blocking minority, led by Poland, which insisted that the reform should be launched in 2021, in line with the original Commission proposal.

Unallocated allowances (a result of reduced industrial activity) and 900 million backloaded allowances (which were postponed in auctioning until 2019–2020) should also be placed in the reserve.

Disagreement over innovation fund

The new agreement on the reform date is close to the position of the Parliament’s environment committee (ENVI), which has already backed 31 December, 2018 as the starting day.

On the other hand, members of the Commitee on Industry, Research and Energy failed to reach an agreement earlier this year. Final decision still awaits the plenary vote, which is scheduled for early July.

There is also a disagreement between the member states and the ENVI over a so-called industrial innovation fund. The committee proposed that part of the backloaded EUAs could be made available to support “breakthrough industrial demonstration projects”, but the Council did not support this idea.

Commission not against

According to the original reform proposal in January, the MSR should start operating with the beginning of the next ETS trading period. But the Commission let be known that it would agree to an earlier start if the member states wish so.

The core idea of the reform is that the erasure of EUAs surplus on the market would help to boost the value of allowances, which should stimulate low-carbon investments that are needed to meet EU climate goals.

Currently, there is a surplus of more than 2 billion EUAs. According to the Commission, the number should range from 400 to 833 million to meet the ideal balance. Remaining permits should be set aside and released according to fluctuations in demand.

Compensation for poorer states

The price of carbon allowances increased after the new Council’s negotiating mandate was adopted. On 28 April, the market also reacted to the information first reported by EurActiv, which predicted that the Polish blocking minority would crumble.

EurActiv sources said that the Czech negotiators would demand compensation in exchange for their support of an earlier MSR launch, which would lead to higher carbon prices.

Analysts already expected that some of the eastern member states would leave the rejecting bloc after concessions were negotiated.

According to the Czech New Agency, one of the Czech requirements was that the reform must not influence the so-called solidarity fund created during the 2030 climate package negotiations.

Through this fund, ten per cent of the EU ETS allowances will be distributed among countries whose GDP per capita does not exceed 90 per cent of the EU average. The resources should be used for purposes of “solidarity, growth and interconnections”.