EUA Dec18 closed above 10 euro on the day of final approval of ETS reforms
27 February, European member states (with Poland, Hungary and Croatia abstaining) rubber-stamped the reform of the EU ETS for the post-2020 period
The new rules put a stricter limit on the total number of allowances in the system by reducing it by 2.2% annually. Free allocation of allowances is expected to be less generous due to a shortened carbon leakage list, decreasing benchmarks and reviewed production levels.
Most importantly, the feed rate of the market stability reserve will be doubled to 24% in the first five years of operation (2019-2023) to absorb the surplus of allowances quickly. In addition, allowances will be cancelled from the reserve from 2023 (and not return to the market in the future) tightening the supply further.
The formal approval at the Council was the final step in the legislative process. The new directive will enter into force on the 20th day following its publication in the official journal.
Although the adopted text did not contain any surprises, market participants “celebrated” the final approval of the reforms by lifting the benchmark carbon contract above 10 euro.