OREANDA-NEWS. Yesterday, the Member States of the European Union and the European Parliament confirmed they have reached an agreement in principle on reform to the EU Emission Trading System (ETS).

Under the agreement, the Market Stability Reserve, which is intended to reduce the supply of allowances at times of surplus and return allowances to the market at times of shortage, will be introduced from January 2019. 

At the same time, and crucially, the 900m backloaded allowances that were due to return to the market in 2019 and 2020 will be placed straight into the MSR, along with any unallocated allowances at the end of this trading phase in 2021, which is expected to be in the region of 500m allowances.

This agreement still needs to be finalised before the legislation can be adopted, yet these reforms, and particularly the decision to bring the start date forward by two years to 2019, are a welcome step in stabilising the EU ETS and bolstering the European carbon price. 

A spokesperson for SSE said:

“The agreement to start the EU ETS reform early is very positive news for cost effective decarbonisation of the European economy.  The MSR will bring stability to the EU ETS, allowing a robust and stable carbon price  to develop which will encourage investment in low carbon and energy efficient technologies, products and services, as well as driving fuel switching for the electricity system.

Yesterday’s agreement sends a strong signal to investors that the European institutions are serious about an ambitious EU ETS, and to confirm this signal the institutions should ensure the legislation is adopted as soon as possible without further delay or debate.”

An early start for the EU ETS MSR was one of the proposals included in SSE’s manifesto for the UK election.