EU’s MSR gets final approval as states look ahead to Phase 4 ETS reforms

Published 10:01 on September 18, 2015  /  Last updated at 15:28 on September 18, 2015  /  EMEA, EU ETS  /  No Comments

EU environment ministers on Friday gave the final stamp of approval required for the bloc’s Market Stability Reserve to become law, even though six member states logged their objection to the measure.

(updates throughout)

EU environment ministers on Friday gave the final stamp of approval required for the bloc’s Market Stability Reserve to become law, even though six member states logged their objection to the measure.

Approval of the EU ETS‘ supply-regulating mechanism was a formality and had been all but certain as the bloc’s three legislative arms OK’ed it earlier this year.

The law must now be translated into all the bloc’s languages before it is published in the EU’s Official Journal, a process that typically takes two to three weeks.

The mechanism will start in Jan. 2019. Click here for more details on the MSR will work.

OBJECTIONS

Six nations voted against the measure including Poland, Bulgaria, Romania, Croatia and Hungary. Those five member states subsequently logged their objection to the MSR compromise that was agreed earlier this year, having only wanted it to start in 2021 as originally proposed.

“In our view, the early operation of the reserve (from 2019) together with the placing of the backloaded and unallocated allowances directly into the reserve will not only change the current legal framework of the 2010-2020 Climate and Energy Framework, but it will seriously undermine the predictability of the carbon market for industry as well,” they said in a joint statement.

“In addition, the transfer of 900 million backloaded allowances directly into the market stability reserve will result in a significant decrease in the EU ETS cap in the 2013-2020 period and therefore increase the 20% GHG emissions reduction target agreed by the European Council back in 2007 and reconfirmed in 2008.”

They added that the MSR deal contradicted the October 2014 agreement by EU leaders on 2030 climate and energy goals because that text had suggested a 2021 start date in line with the European Commission’s original proposal.

Poland also questioned the legality of the MSR regulation being agreed by a qualified majority, stating that because the decision will significantly affect member states’ choices between different energy sources it should be agreed unanimously.

Cyprus also voted against the measure in Friday’s ballot, but the country was not included in the joint statement.

Poland led a blocking minority of mainly eastern European states that had opposed an earlier start to the MSR, but this was broken after the Czech Republic and Lithuania defected to the western EU camp.

LOOKING FORWARD

With the MSR passed, EU nations turn to the Commission’s proposal for reforms for Phase 4 (2021-2030).

Member state officials meet next week (Sept. 22-23) in Brussels for their second round of preliminary discussions, aiming to tee up an initial debate among environment ministers at the next Environment Council meeting on Oct. 26.

In a preliminary response, the UK on Thursday broadly approved the measures but will be pushing for a tiered approach to free allocation.

In a statement on Friday, Finland noted its concern for industrial competitiveness and said it was important to consider an EU-level system to compensate energy-intensive industries for indirect ETS costs, for instance via higher electricity prices.

The Commission proposal failed to outline mandatory indirect compensation, saying member states ‘should’ compensate for indirect costs, though this is stronger wording than the current ‘may’ that has led to only six governments providing any compensation so far in the current EU ETS trading phase.

In a parallel process, UK Conservative MEP Ian Duncan will begin drawing up a report to initiate discussions on Phase 4 in the EU Parliament after he was nominated as rapporteur for the file this week.

A majority of member states in Council and the EU Parliament need to agree on the proposal for it to become law, in a process expected to take at least a year.

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

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