Redesigning the EU Emissions Trading System (ETS) - What’s next?

Since the recession hit in 2008, market fluctuations in the EU Emissions Trading System (ETS) have laid bare its weak points. To address the plummeting carbon price, rebalance the ETS and avoid the risk of renationalisation of carbon policies, the EU institutions are nearing agreement on the introduction of the Market Stability Reserve (MSR), which will come into effect in 2019, Ivo Belet MEP, Member of the European Parliament Committee on the Environment, Public Health and Food Safety and rapporteur for the market stability reserve, told participants at Friends of Europe’s Café Crossfire debate.

“In negotiating the MSR, we have found a compromise between ambitious reform and good guarantees against carbon leakage in energy-intensive industries,” he said. “We are back on track with the ETS and just in time. The EU needs to send an important signal to the world at the COP21 in Paris this year.”

As soon as the MSR proposal is officially approved, the European Commission will come forward with the ETS review, a new package of legislative proposals to support the EU ETS Directive in line with the European Council Conclusions from October 2014. The issues at play include how to best use revenue raised through the ETS, redesigning the post-2020 free allocation system so that it relies on targeted benchmarks without distorting the internal market, and knowledge and capital transfer to developing countries.