Negotiations on amendments to the European Emissions Trading System (ETS) have yielded an initial reform designed to keep the price of CO2 stable. On Wednesday in Strasbourg, representatives from the European Parliament and the Council—comprising the 27 EU member states—agreed to hold a larger number of CO2 allowances in the Market Stability Reserve (MSR). These can be released into the market to lower prices during periods of fluctuation.
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Previously, any allowances in the reserve exceeding 400 million were automatically rendered invalid. This upper limit is now set to be raised to 700 million, with each allowance corresponding to one tonne of carbon dioxide (CO2). The European Parliament and the Council must still formally approve the agreement in the coming weeks.
Emissions trading is Europe’s primary tool for achieving its climate goals. Through this system, the EU caps the total amount of carbon dioxide that specific sectors are permitted to emit. These sectors include, for instance, steel and aluminum production, the chemical industry, electricity and heat producers, and fertilizer manufacturers. Companies are required to purchase CO2 allowances—the total number of which decreases each year—in order to reduce carbon dioxide emissions.
In addition to expanding the reserve, further changes are planned following pressure from industry. The number of allowances is set to decrease more slowly than previously intended; furthermore, companies that face a competitive disadvantage internationally due to ETS costs are to continue receiving free allowances for a longer period. However, negotiations regarding these changes are likely to take several more months.
Author: AFP – jhm/oer – Translated by Blackout News
Sources: AFP Press Portal