Although there is broad agreement that a market stability reserve is needed to remove the glut of emissions allowances from the market to relieve the downward pressure on prices, the two sets of policy makers remain locked in disagreement over when the plans should be put into action, according to Point Carbon analysts at Thomson Reuters.
“As we hear relatively little from the closed-door discussions, many may have the impression that the EU is closing in on a deal to reform the carbon market, and only details are left to iron out. In fact, the debate is intense and the details will determine how successful EU’s climate efforts will be,” said senior analyst Emil Dimantchev.
A report from Point Carbon explains that the main difference under discussion is that the parliament is calling to start the reserve by the end of 2018, while the council’s current negotiation position is to start the mechanism in 2021.
Bringing the mechanism in sooner will ensure that the allowances which have already been removed from the market by backloading their release into the market and could result in €15 billion euros in revenues from the carbon market in the next decade, according to Thomson Reuters projections.
This could also bring an emissions cut equivalent to 50 medium-sized coal plants, the report says.
“Reforming the ETS earlier than 2021 will allow the EU to leverage its price on carbon to bring about significant cost-effective emission reductions, and lower the overall cost of its climate objectives,” Dimantchev added.