The European Parliament (EP), the European Commission (EC) and the European Council have signed a provisional agreement to revise the EU Emissions Trading System (EU ETS) for the period after 2020 and aim at putting the EU on track to achieving its commitment under the Paris agreement to decrease greenhouse gas emissions (GHG) by 40% by 2020. The text will have to be formally approved by the EP and the European Council. Once endorsed by all the relevant authorities, the revised EU ETS Directive will be published in the Official Journal of the Union and will enter into force 20 days after publication.
This agreement comes after around two years of negotiations. It includes a doubling of the intake rate of surplus allowances into the Market Stability Reserve (MSR) to 24% for 5 years starting from 2019 onwards until 2023, up from a previous proposal of 12%: 800 millions of allowances shall be taken out from the Market Stability Reserve as of 1 January 2021. The linear reduction factor after 2021 shall be at 2.2% (as proposed by the Commission), with a view to to increasing it to 2.4 % by 2024 at the earliest. The amount of allowances going into the Market Stability Reserve should increase until 31 December 2023; from 2024 the allowances held in the reserve exceeding the total number of allowances auctioned during the previous year should be cancelled. Up to 5% of allowances could be allocated for free to industry exposed to the risk of carbon leakage. All revenues from auctioning the allowances will be earmarked for funding green-energy and other projects fighting climate change. The agreement includes a new chapter to tackle maritime CO2 emissions and allowances to the aviation sector will be cut by 10% compared to the 2014-2016 average. The agreement
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. The MSR is meant to reduce the surplus of allowances on the ETS market, which is estimated at 1.7bn.