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At a meeting of the EURELECTRIC Board of Directors on 17 November, agreement was reached on a set of key recommendations for strengthening the EU ETS in the context of the on-going reform.
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 Board of Directors adopted the position following the outcome of a EURELECTRIC commissioned study, 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.
EURELECTRIC President Antonio Mexia stressed that “In the light of the Paris outcome, the EU can make a cost-effective contribution to closing the global emissions gap by taking appropriate measures in the current reform to strengthening the EU ETS in line with the EU’s long-term decarbonisation objectives and its global commitments. An increase in the LRF for Phase IV combined with improved MSR design parameters will be necessary to deliver a meaningful price signal both in the short and longer term.”
The EURELECTRIC position also states 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 also 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 draft ETS Directive.
Mr Mexia stated that “In fulfilling our commitment to become carbon‐neutral by 2050, the electricity industry can lead the drive to decarbonise Europe. A well-functioning energy market underpinned by a robust ETS is necessary to ensure the cost-effective, technology-neutral and market-based delivery of the EU’s decarbonisation objectives and will help to drive major investment in renewables and energy efficiency.”
EURELECTRIC also believes that the impact of renewables support and increased energy efficiency targets in the ETS sectors after 2020 should be properly assessed and any possible overlapping effects on the supply/demand balance for emission allowances should be understood and addressed. An improved governance process, where impacts of the additional measures are clarified in a dialogue between Member States and the Commission, will be important to ensure the maintenance of a cost-effective and market-based approach to the decarbonisation of the European power sector.
The ICIS study and corresponding position paper are being completed with additional data on investments costs and impact on electricity prices resulting from the proposed reform measures for six countries (i.e. Bulgaria, Croatia, Estonia, Greece, Poland and Romania). Both documents will be published in the coming days.