Today the European Parliament’s Industry Committee (ITRE) failed to reach agreement on the on the Market Stability Reserve (MSR), the Commission’s proposed fix for the oversupplied EU carbon market. This often environmentally conservative committee came very close to improving the Commission proposal. Essential votes on an early start (31 in favour and 32 against) and on placing the backloaded allowances into the MSR (31 in favour and 31 against) were very narrowly rejected. Once these amendments were not agreed upon, the Committee overwhelmingly rejected (28 in favour 38 against) the Tajani report which would have called for a 2021 start date, no action on the backload, and a misuse of Phase 3 allowances for carbon leakage protection in Phase 4.
Thus, despite near-unanimous support for the MSR in principal, disagreements on the details left ITRE with no opinion. The Commission proposal now moves unchanged to the Environment Committee (ENVI) on February 24th, and the fact that ITRE has supplied no mandate gives ENVI a free rein to produce an ambitious report. The Commission’s proposal, as it stands now, risks crashing the EU carbon price, so it is essential that ENVI vote for an early start to the MSR. A 2016 start, as called for by Sandbag, would help to stabilise the carbon price and prevent the rollercoaster pricing implied by our interactive surplus model. A volatile carbon price is bad for European business, bad for Europe’s international reputation, and bad for the low-carbon transition.
The ENVI Committee must also vote for the cancellation of the backload and unused allowances, which risk boosting the already vast ETS surplus to new heights. Sandbag’s analysis, using the latest power consumption and emissions data, predicts a surplus of 4.5 billion by 2020. Such a surplus would doom the EU’s Emissions Trading Scheme to irrelevance, and shows why the Commission’s current MSR proposal, beginning in 2021, is not worth having.
Damien Morris, Head of Policy at Sandbag, commented: “The implicit verdict of today’s vote in industry committee is that a weak fix to the carbon market isn’t worth getting out of bed for. This sends a clear signal to ENVI that a market stability reserve will be unpalatable to most MEPs if it doesn’t address the avalanche of allowances coming in the years leading up to 2020.”
The vote against the final report was also welcome insofar as it showed most MEPs feel uncomfortable with agreeing new carbon leakage protections that pre-empt the Commission’s formal review of the ETS directive. The vote against the final report was also welcome insofar as it showed most MEPs feel uncomfortable with agreeing new carbon leakage protections that pre-empt the Commission’s formal review of the ETS directive.
Sandbag is recommending the following Amendments to the Commission MSR proposal: –
- Cancel backloaded allowances (or at the very least place into the MSR)
- Cancel unallocated free allowances (or at the very least place into the MSR)
- Start the MSR by 2016
- Change the annual supply adjustments (larger adjustments when the surplus is further away from the threshold range)