The European Parliament’s Environment Committee has voted on the Emissions Trading Scheme’s Market Stability Reserve. The Committee backs introducing the mechanism early, by 31 December 2018, as well as redirecting so-called “back loaded” allowances to the Market Stability Reserve instead of returning to the market.
According to the European Commission, there is oversupply of carbon credits on the market, which results in too great an imbalance between supply and demand in emissions allowances. In connection with its 2030 Framework for Climate and Energy, the Commission proposed a Market Stability Reserve mechanism, which would be introduced at the beginning of the fourth emissions trading period (starting 2021). The mechanism aims to automatically regulate the number of carbon credits on the market.
The introduction of the Market Stability Reserve raises the price of emissions allowances, which increases costs for industry, weakens competitiveness, and slows down investments. The European Parliament’s Environment Committee’s proposal would alter the Commission’s proposal in a way that is less advantageous for industry.
Emissions Trading Scheme compensation can mitigate the growing costs and it has been implemented in several other European countries. It would be important for industry that Finland implements the compensation scheme as well.