According to the European Commission, the total number of CO2 emission allowances in circulation on the European carbon market currently stands at nearly 1,655 million allowances. This level is nearly twice as high as the threshold of 833 million allowances set in the legislation. Consequently, the number of allowances to be put in the Market Stability Reserve (MSR) of the EU Emissions Trading System (ETS) will be doubled from 12% to 24% of the total number of allowances in circulation and more than 397 million allowances will be withdrawn from auction volumes from September 2019 to August 2020.
The EU Emissions Trading Scheme puts a cap on the CO2 emitted by more than 11,000 EU installations in the power sector and energy intensive industry through a market-based cap and trade system. As agreed in early 2018, the cap on the total emissions volume will be reduced by 2.2%/year from 2021 onwards (compared to 1.74%/year over the 2013-2020 period). The number of allowances that will be placed in the market stability reserve (MSR) will be doubled temporarily until the end of 2023. Besides, a new mechanism will limit the validity of allowances in the market stability reserve above a certain level starting from 2023. This will help the EU to achieve its commitment under the Paris agreement to decrease greenhouse gas emissions (GHG) by 40% by 2030.
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