The UK’s position paper says that the introduction of the market stability reserve (MSR) should take place four years ahead of the current proposed start-date of 2021 in order to correct the chronic oversupply of emissions allowances in the market.
The 2 billion allowance surplus has undermined the functioning of the market resulting in a system which does not send the right price signals to low carbon investors, the government said.
The UK will follow the lead of Germany which also backs a 2017 start-date for the MSR, to coincide with the end of the so-called ‘backloading’ of allowances.
Under current plans the backloaded allowances would be allowed to return to the market in 2019 with the MSR coming into force two years later.
But the UK has called for the permits to be kept out of the market, either through cancelling them or placing them directly into the reserve from 2017.
The MSR will allow a reserve of carbon permits that will increase or reduce the system supply in response to levels of demand, allowing the market to operate effectively as external circumstances change.
“A strong EU ETS can be a symbol to the rest of the world – but that is not what we have now,” UK energy secretary Ed Davey said.
“Europe has the opportunity to show the world how we can cut emissions while creating investment, jobs and growth – but only if we reform the system, and reform it fast,” he added.