EURELECTRIC welcomes Environment Committee vote supporting ambitious reform of EU ETS

EURELECTRIC strongly welcomes the outcome of the vote in the European Parliament’s Environment Committee today on the revision of the EU ETS.

The vote includes a number of important measures aimed at strengthening the EU ETS which include doubling the intake rate of the Market Stability Reserve to 24% (2019-2022), an increase in the Linear Reduction Factor from 2.2% to 2.4% from 2021 onwards, and cancelling 800 million allowances from the MSR in 2021.

“The vote today puts the EU on track to implement necessary reforms to the EU ETS that will reinforce it as the cornerstone instrument of the EU’s climate and energy policy. As a strong supporter of the EU ETS as a key driver for market-based investments in low-carbon electricity generation, we welcome the outcome of this vote which is an important step towards delivering a credible carbon price in the short and longer term,” said EURELECTRIC Secretary General Hans ten Berge.

“We are particularly happy that the ENVI Committee has adopted a number of important proposals that will strengthen the EU ETS in the current revision, tightening the parameters of the Market Stability Reserve, the proposed increase of the Linear Reduction Factor to 2.4%, as well as measures to account for the impact of overlapping policies,” he added. 

EURELECTRIC also welcomes the fact that the ENVI vote includes a number of amendment proposals aimed at future-proofing the EU ETS and to align it with the review cycle agreed under the Paris Agreement. These are important as they provide more certainty and predictability to the system.

However we believe that further work will be needed to find appropriate compensation for those Member States with high carbon intensity and low GDP/capita levels that will be faced with significantly higher investment needs than they would under the Commission’s current proposal.

EURELECTRIC also believes that following the recent publication of the Clean Energy Package by the Commission, consistency and coherence between the various climate and energy targets for 2030. European policies and implementing instruments should not undermine the overall economic efficiency and environmental effectiveness of the EU-ETS. We will therefore stress the importance of comprehensively assessing and recognising the impact that the various measures, including the proposed energy efficiency target, will have on the EU ETS.

Background: In recent weeks EURELECTRIC adopted a position paper with a set of key recommendations for strengthening the EU ETS in the context of the on-going reform. In the paper EURELECTRIC proposes an increase of the Linear Reduction Factor (LRF) in Phase IV of the ETS to at least 2.4% and to combine this with an increase in the intake rate of the Market Stability Reserve (MSR) to 24% per year from 2019 until at least 2023, as well as future-proofing the MSR by lowering the applicable thresholds (e.g. to 300-600 million EUAs across Phase IV).

The paper also shows that the proposed measures would lead to an increase in the ETS allowance price and associated compliance costs for the electricity sector before 2030. This would mean that Member States with high carbon intensity and low GDP/capita levels would also face significantly higher investment needs than they would under the Commission’s current proposal, and would thus face a higher burden as a result of the increased ambition.

Discussions to strengthen the EU ETS must therefore also incorporate solutions to mitigate these costs including using the increased income from auctioning and proportionally increasing compensation arising from the current provisions of Article 10c and Article 10d of the ETS Directive.

The recommendations are based on a EURELECTRIC commissioned Study on Options to Strengthen the EU ETS, conducted by consultants ICIS. The study explores the viability and effectiveness of a number of options to strengthen the EU ETS in light of the ambitious outcome of the Paris Agreement.