EU split leaves MSR deal out of reach

Published 14:24 on March 10, 2015  /  Last updated at 14:52 on May 11, 2016  /  EMEA, EU ETS  /  No Comments

EU nations remain split over how to craft MSR reforms after talks broke on Tuesday as a group of eight nations refused to accept an earlier start date.

EU nations remain split over how to craft MSR reforms after talks broke on Tuesday as a group of eight nations refused to accept an earlier start date.

EU presidency holder Latvia put forward its compromise proposal of a 2019 start but eight eastern nations stuck to a position put forward by Poland to not introduce the supply measure before 2021, according to two government sources close to the process.

“I wouldn’t say we rejected the Latvian proposal but significant elements will have to change,” said a government source from one of the eight nations who asked not to be named for policy reasons.

He said the start date remains the key sticking point, with western states including Germany and the UK pushing for a 2017 introduction to the bill originally envisaged to start in 2021.

Latvia’s proposal was circulated last week and said the MSR should operate from Jan 1 2019, which could effectively mean very little difference from the vaguer EU Parliament text to have it operational by Dec 31 2018.

“(Latvia) didn’t try hard with the date, differing the Council proposal from that of the Parliament by one day,” the source added.

The Latvian proposal matches the Parliament’s position to put the 900 million backloaded EUAs directly into the MSR but made no reference to the Parliament’s call to also fill it with unallocated EUAs.

According to the EU’s qualified majority rules, the eight member states are enough to block an agreement, which Latvia needs before it can launch final negotiations on the text with the Parliament.

Poland’s State Secretary for the Environment Marcin Korolec tweeted: “Some thought I was bluffing on the blocking minority on the early start. Well, think again. Let’s work out good compromise.”

According to a third source with knowledge of the negotiations, one idea being batted around by member states is to put both the backloaded allowances and any unallocated EUAs in the MSR in 2018 or 2019, but then have the reserve become operational in 2021.

That would mean more than 1.5 billion EUAs currently due to come to market starting in 2019 would be withheld, but that any further oversupply in the EU ETS towards the end of the current phase would remain in the market later than it would under ENVI’s proposal.

Such a compromise could satisfy the eastern bloc’s concerns about the MSR’s start date while expediting the removal of much of the market’s current oversupply of around 2.1 billion units, which is a top issue for western EU states.

By Ben Garside and Mike Szabo – ben@carbon-pulse.com