EU ministers reach compromise on carbon market reform

03 March 2017 | Markets

Last Tuesday, February 28th, the European Union (EU) Council of Environment Ministers approved the reform of the European Union Emissions Trading Scheme (EU ETS) for the period 2021-2030.

The agreement to reform EU ETS comes after almost two years of discussions, but only two weeks after the European Parliament voted in favor of a new Directive.

If the Council, Parliament and the European Commission reach a final agreement, it will become the first major legislative package to halt global warming adopted by the EU since the signing in December 2015 of the Paris Agreement.

The support of 19 member countries, representing 71.44% of the EU population, exceeds the required minimum of 16 states and 65% of the EU population for adoption of the agreement.

EU ETS was the first system in the world to control CO2 emissions and remains the largest, accounting for about 40% of GHG emissions in the European Union. Applies to more than 11,000 installations in the energy and industrial sector.

The proposal, agreed on Tuesday at 6:30 p.m., maintains Parliament's ambition for the Market Stability Reserve, which could rise from 12% to 24% between 2019 and 2023. However, other measures aligned with the European Commission, as guaranteeing 30% of the benchmark to facilities that are not at risk of carbon leakage.

In addition, this proposal fixed the auctioning rate of duties at 57% of the total rights allocated for the period and raises the possibility of setting a uniform inter-sectoral correction factor for allocation to all sectors.

On the other hand, it proposes that the benchmarks used to determine the allocation for the period 2021-2025 be updated in accordance with data 2016-2017 and an automatic adjustment applied for those benchmark high-exchange or low-change benchmarks (when the ratio of annual benchmark reduction exceeds 1.5% or less than 0.2%). For the period 2026-2030, benchmark determination is posed in the same way, but with data 2021-2022 and subject to the application of an annual reduction.

The US echoed the regulatory breakthrough, and its price increased by 13% on Wednesday, supported by German electricity and speculation. On Thursday, however, the collection of profits and the low energy demand managed to reduce the initial euphoria. The closures of the week were: € 5.19 / t (Monday); € 5.23 / t (Tuesday); € 5.91 / t (Wednesday) and € 5.46 / t (Thursday).


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Source: Factor Trading