The European Council has agreed to support a January 2019 start to the Market Stability Reserve, two years earlier than the original Commission proposal.[1] The Council also agreed to place hundreds of millions of unallocated allowances[2] into the Market Stability Reserve instead of allowing them to return to market in 2020. The Council had already previously agreed to place 900 million backloaded allowances into the reserve that threatened to flood the market in 2019 and 2020.

Wednesday’s developments bring the Council position closely in line with the position reached by the European Parliament’s Environment Committee in February. This bodes well for inter-institutional negotiations scheduled to take place next Tuesday (May 5th). There had been rumours prior to this decision that some of Parliament’s representatives had threatened to boycott Tuesday’s Trialogue meeting if no progress were made on the start date. The Commission, meanwhile has repeatedly indicated that it is open to starting the Market Stability Reserve earlier than January 2021 if there is appetite in the Parliament and Council.

Some differences remain between the Council and Parliament positions. The Council has proposed shielding a significant share of auctionable allowances – as many as 800 million – from the action of the Market Stability Reserve, a concession that had not been offered by Parliament. These were allowances that had been assigned to low-income Member States for the purposes of "Solidarity Growth and Interconnections" in the October 2014 Council Conclusions. The Parliament had also proposed to repurpose some 300 million of the unallocated allowances placed into the reserve towards an innovation fund. This has not so far been explicitly supported by the Council.

European Council by night

European Council building by night. Photo by TPCOM on Flickr. Used under a Creative Commons licence.

Sandbag welcomes the developments in the Council — Damien Morris, Sandbag’s Head of Policy says:

“This is a major advance in the Council’s position on the Market Stability Reserve and a significant step towards a functioning carbon market. Hopefully an agreement on this landmark proposal is now in sight and we can start to look ahead to more fundamental reforms of the EU ETS. While an effective Market Stability Reserve is important, it is ultimately no substitute for an ambitious cap on emissions.”



Sandbag's briefing on the Council MSR agreement: Decoding the Deal.

[1] The Council conclusions.

[2] Sandbag's explanation of the unallocated allowances.