ETS: The Stability Reserve is the first urgent measure to reform the Emissions Trading System

ETS: The Stability Reserve is the first urgent measure to reform the Emissions Trading System, A Market Stability Reserve (MSR) mechanism, Emissions Trading System (ETS), Matthias Groote, carbon leakage provisions of the ETS, New Entrants' Reserve (NER),

A Market Stability Reserve (MSR) mechanism will be introduced to re-balance the Emissions Trading System (ETS) following a vote today in the European Parliament. Surplus allowances - at present estimated at over two billion – will be placed into this reserve and released from it at the right time under certain defined conditions. 

During the negotiations with the European Commission, the S&D Group pushed for an early start of this mechanism and succeeded in having it introduced two years earlier than originally proposed, as it will be operational on 1 January 2019.

S&D spokesperson on climate and environment, Matthias Groote, said: 

"The EU-ETS needs fixing urgently. The economic crisis and the over-allocation of allowances have led to a significant destabilisation of the system. The introduction of the Market Stability Reserve will send a strong signal to the markets and already begin to influence long-term investment decisions, avoiding costly mistakes and technology lock-in.

"The ETS is one of the main pillars of EU climate policy and has the potential to inspire other regions in the world. This is why a well-functioning and reformed ETS with an instrument to stabilise the market would be the main European instrument to achieve the Union's greenhouse gas emissions reduction target.

"Socialists and Democrats want stability and predictability in the ETS. By automatically transferring allowances to the reserve in times of oversupply and releasing allowances in times of undersupply, the ETS would become more flexible and thereby more stable. Stability is the key to necessary investments for sustainable economic growth.

"With the vote today we are sending a strong and clear signal towards the climate negotiations that will take place this year in Paris during the month of December."

To address the concerns of industry, the Decision includes a specific review of the carbon leakage provisions of the ETS, within six months of the entry into force of the Decision, and the establishment of a new innovation fund for breakthrough industrial innovation projects. This new fund will have 50 million allowances and it will help the transition from the New Entrants' Reserve (NER) - set up for the third phase of the ETS, with 300 million allowances to stir innovative low-carbon energy demonstration projects - to the fourth phase of the ETS.

Without prejudice to the overall number of allowances to be placed in the reserve annually from 2019, it was also agreed that the so-called "solidarity" allowances (amounting to 10% of the annual total), would be exempt from the reserve until 2025.