European business groups are sharply divided over how quickly and aggressively the European Union needs to reform its Emissions Trading System (ETS), a division unlikely to help spur swift changes.
The European Commission has proposed that starting in 2021, it set aside hundreds of millions of surplus carbon allowances from the ETS to help firms cope with economic shocks, and drive carbon prices up to levels that encourage them to invest in lower carbon technologies.
Germany is broadly in favour, but Poland opposes the so-called market stability reserve (MSR) bill. Few other countries have taken sides. Talks are at an early stage, and lawmakers face mounting lobbying efforts as they grapple with the details.
Progress on the bill is being closely watched by carbon market participants, as analysts say the reserve could add around 11 euros to carbon prices, which fell 5.5% on 23 September, as the news that the European Parliament would not vote on it until February dashed hopes of a quick deal.
BusinessEurope, which represents business federations in all EU states, is against adopting the MSR without first having the Commission publish a legislative proposal to shield industries from foreign competitors in countries with looser environmental regulations, said Alexandre Affre, BusinessEurope’s director for industrial affairs.
“With the MSR we have only one side of the coin … At the same time we would like a full reform of the ETS that takes on board carbon leakage measures post-2020,” he told Reuters.
The stance is at odds with other business groups and Germany, which want the MSR to start several years early.
Analysts say that an early start would be impossible, because it would get bogged down in the more complex legislation involving carbon leakage.
Earlier this week, a smaller group of investors, power companies and technology companies, including Philips and Unilever, called for an early structural reform of the ETS, which they say will help drive Europe’s economy, by providing more certain investment conditions.
Germany wants to strengthen the reserve proposal by starting earlier in 2018, and by putting 900 million permits currently being temporarily withheld under the EU’s seperate backloading measure directly into the reserve.
Putting those permits directly into the reserve would maintain carbon prices above 10 euros a tonne, and prevent them slipping back to current levels near €6 later this decade, according to Thomson Reuters Point Carbon data.
BusinessEurope oppose the move, saying it would harm businesses that have already made investment decisions based on laws agreed up to 2020.
“Things have been fixed up to 2020 we should not change the rules,” said Affre.
But the group appears to be not entirely united.
The UK’s Confederation of British Industry (CBI), one of BusinessEurope’s national member federations, said it supported Germany’s idea for the backloaded permits.
“To ensure a smooth transition to this regime, the allowances due to be returned to auction through backloading in 2019-20 should be placed in reserve rather than returned to auction,” the group said this week in a policy document.