Member states finally approved creation of CO2 reserve

The UE member states have finally approved new regulations on creating a stability reserve for the EU CO2 emissions allowances market. Their purpose is to increase the prices of permits for emission greenhouse gases, and to persuade the industry to “green” investments. The regulations that were accepted by EU’s environment ministers on Friday specify creating a market stability reserve (MSR) in 2018 and starting its operation from 1st January 2019, and also transfer of 900 million of allowances withdrawn from the market in the so called backloading process. Initially the allowances were supposed to return to the market. 
 
The reform also provides that the allowances that are not allocated will be directly transferred to MSR in 2020, and the decision whether they would be used in future will be made while reviewing the emission trading scheme. Until the end of 2025 about 10 percent of allowances is to be excluded from the reserve. The so called solidarity envelope is to be distributed among the poorest EU member states (with lower GDP than 90 percent of EU average). Our country will also profit from that solution. 
 
The stability reserve, through increasing prices of CO2 emission allowances, will encourage the industry to fulfil the assumptions of EU climate and energy policy and to invest in green technologies. Presently, the price of a single gas emissions permit is close to 7 Euro and it is definitely too little to achieve the objectives of EC which were set while creating the carbon market. The reserve is supposed to automatically withdraw permits from the market if a present limit is exceeded. They are to be returned into the market in case of their shortages. Since 2008, as a result of the crisis, the prices of permits have dropped by 65 percent. 
Each year the EU sets the limit of emission allowances for power plants, energy-intensive industries and airlines. Presently, until 2020, about 1.74 percent of the limit is withdrawn from the market per annum. In accordance with the compromise that was reached on the last year EU climate summit, 2.2 percent of the limit will be withdrawn per annum after 2021. Polish government made its best efforts to avoid introducing the reserve or delay it for as long as possible. Organisations dealing with climate protection are pleased that it was introduced.  “It is hard to understand the stance of Polish government. The approval of the ETS reform aims at assuring better predictability of carbon allowances prices, and as a result – more investment security” – Karolina Ubysz from the ClientEarth Foundation judged in her statement for PAP (Polish Press Agency). She stressed that a more flexible market would improve the scheme and enable investments in green technologies. 
 
Mrs Ubysz pointed out that the profits from sales of emission allowances are directly transferred to the budget, thus the increase of prices will result in higher budget revenues. “During the last auction in July of this year Poland sold over 2.8 million emission allowances, thus earning EUR 23 million. Between 2013 and 2012 Poland gained in total about 630 million allowances that could be sold in auction. Profits from the sale of allowance should be spent on support of energy efficiency and development of RES in Poland” – the expert added. However, the government is afraid that higher prices of certificates may deteriorate competitiveness of our industry and, in extreme case, its move outside the UE boundaries. 
 
Source: Green Economy
 
 
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