COREPER adopted ETS reforms, as expected
The constant representatives of the members states to the EU adopted the post-2020 reform of the EU ETS, as expected. 25 member states supported the reforms, Poland and Hungary abstained and Croatia voted against.
• The cap on the total volume of emissions will be reduced annually by 2.2% (linear reduction factor (LRF)).
• The number of allowances to be placed in the market stability reserve (MSR) will be temporarily doubled until the end of 2023 (feeding rate).
• A new mechanism to limit the validity of allowances in the MSR above a certain level will become operational in 2023.
• The provisions of the new ETS directive will be kept under regular review, including carbon leakage rules and the LRF.
• The share of allowances to be auctioned will be 57%, with a conditional lowering of the auction share by 3% if the CSCF is applied. If triggered, it will be applied consistently across the sectors.
• Free allocation rules have been better aligned with the production levels of companies and the benchmarks used to determine free allocation have been updated.
• The sectors at the highest risk of relocating their production outside the EU will receive full free allocation. The free allocation rate for sectors less exposed to carbon leakage will amount to 30%. A gradual phase-out of that free allocation for the less exposed sectors will start after 2026, with the exception of the district heating sector.
• The new entrants' reserve (NER) will initially contain unused allowances from the current 2013-2020 period and 200 million allowances from the MSR. Up to 200 million allowances will be returned to the MSR if not used during the period 2021-2030.
• Member states can continue to provide compensation for indirect carbon costs in line with state aid rules. Reporting and transparency provisions are also enhanced.
The Council is expected to approve the text shortly. The environment committee of the European Parliament will vote about the text next week and the plenary is expected to vote in the week between 11 and 14 December.
As this was the most likely outcome of yesterday’s meeting, the market was not able to maintain the gains it achieved immediately after the vote. The EUA Dec17 ended the day with a loss of 0.3%.