Latvian Presidency proposes 1 January 2019 as start of reformed CO2 market

CO2 + H2O emissions. Germany, 2008. [dmytrok]

A new proposal from Latvia, holder of the EU Presidency, puts forward a date of 1 January 2019 to start reforms of the Emissions Trading System (ETS), according to EU sources, as part of efforts to seal a compromise deal.

The latest proposal says a Market Stability Reserve, to hold surplus carbon allowances, should be set up in 2018 and start operating from 1 January 2019, two years earlier than the European Commission’s original proposal.

It also says unallocated allowances should be transferred to the reserve in 2020.

The EU sources, speaking on condition of anonymity, said the date was circulated in a proposal from the Latvian Presidency on Friday.

Officials were unavailable for comment.

The presidency is working to build a compromise position ahead of a meeting of diplomats representing all 28 member states on Wednesday that is meant to prepare the ground for negotiations on a legal text on 5 May.

The sources said Poland, whose economy relies on coal, was still leading a blocking minority that wants a 2021 start date.

At the same time, the European Parliament and some member states, notably Britain and Germany, have backed early reform to incentivise investment in zero carbon energy, including renewables and nuclear power.

The EU ETS is meant to be central to the European Union’s efforts to reduce carbon emissions, but oversupply following recession, has meant the price of permits has stagnated at around €7 a tonne.

Thomson Reuters Point Carbon analysts said the difference between the European Parliament’s position that the MSR should start by the end of 2018 and the 2021 date was equal to the annual emissions of 50 medium-sized coal plants.

The Commission, the EU executive, has said it cannot put forward proposals on deeper structural reform of the ETS, the world’s biggest carbon market, until the smaller MSR reform has been agreed.

The European Union Emissions Trading System (EU ETS) was inaugurated on 1 January 2005, in order to help achieve the Kyoto Protocol objective of reducing greenhouse gas emissions by 8% by 2012. It sets emissions limits for energy-intensive industries like steel, cement and electricity generation.

The EU ETS allows member states to distribute CO2 emissions quotas to authorised industries. These industries can then exchange the quotas amongst themselves, on the condition that they respect their own national emissions limit.

The revised directive, adopted under the 2008 climate and energy legislative package, changed the ETS from a system of free allocations to an auction in 2013.

Certain exceptions were made for high-energy industries with strong international competition, such as steel. Increased costs in Europe could lead to the sector leaving the continent altogether.

>>Read: LinksDossier: EU industry and the 'carbon leakage' threat

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