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As the EU carbon market reform enters into decisive trilogue talks this week, EURELECTRIC calls on EU legislators to adopt ambitious measures to strengthen the EU ETS as the key instrument to deliver cost-effective emission reductions.
“Now is the time to step up to the plate and make the necessary compromise with a view to finalising the entire ETS reform. We must ensure that certainty is provided to make the necessary investments that are needed for the clean energy transition,” said Kristian Ruby, EURELECTRIC Secretary General. “The transition requires deep GHG emissions cuts across the economy and we need an ambitiously reformed carbon market to get us there.”
The electricity sector has repeatedly called for stronger ETS ambition. EURELECTRIC proposes an increase of the Linear Reduction Factor (LRF) to at least 2.4% to guarantee long-term predictability of the system and to put the EU on track to cost-effective achievement of its Paris Agreement commitments.
EURELECTRIC also supports the temporary doubling of the Market Stability Reserve (MSR) intake rate from 12% to 24%. We prefer the Council’s proposal, which envisages a longer operation of this measure compared to the Parliament’s position and is therefore better suited to deliver the much needed market equilibrium.
However, this temporary doubling of the MSR intake rate will only provide a partial solution to the problem of market oversupply.
EURELECTRIC also supports the cancellation mechanism reflected in the current Council position which would void all allowances held in the MSR above the previous year’s auction volumes, and would continue cancelling these surplus allowances into the future. This measure would lead to the cancellation of up to 3bn allowances over the course of the next trading period, compared to the one-off cancellation of 800m allowances proposed by the European Parliament.
“Adopting an ambitious reform including a rules based mechanism for the cancellation of allowances is expected to have a significant impact on addressing the toxic oversupply in the carbon market,” Kristian Ruby said. “Such measures are urgently needed to deliver a credible carbon price signal to drive investments in cost-effective decarbonisation technologies”.
Finally, in order to mitigate the significant impact that increased ambition will have on the electricity sector in Member States with lower GDP/capita levels, EURELECTRIC supports a proportional increase of the Article 10c derogation of between 40% and 80% and an increase in the Modernisation Fund of between 2% and 4%.