The EU member states came to an agreement last Wednesday regarding the set up of the Market Stability Reserve (MSR) which will eventually lead to further discussions and negotiations with the European Parliament (EP) on the 30th of March.
The starting date of the MSR is proposed to be 2021, in contrast with what “big” countries such as Germany and U.K. supported. However, the stance of Poland, which is in favor of 2021 since they depend mainly on coal, prevailed during this meeting.
It is about time that a mechanism like MSR is implemented since its outcome will help lower greenhouse gas emissions by 40% by 2030 compared to 1990’s levels; something that should be targeted at all costs for the sake of our planet.
EU-ETS, MSR and the carbon allowances
The EU Emissions Trading System (EU ETS) is the world’s largest carbon market and its purpose is to encourage corporations to invest in low-polluting technologies and force them to pay for their emissions. This System began ten years ago and we are currently undergoing its third phase. The problem that has been created though is the great amounts of carbon allowances surplus which exists due to the recent financial recession and make it cheaper for companies to use polluting coal than other less polluting energy sources.
The solution to this issue would be the construction of the MSR which would absorb and eliminate most of the carbon permits surplus and thus increase carbon prices. More specifically, the surplus figures reached 2.1 billion allowances in 2013 leading to carbon’s price fall. The Latvian Presidency of the EU Council, supporting the creation of MSR made the following statement: “The decision is an important step in the fight against climate change and paves the way for the reform of the EU greenhouse gas emission trading scheme (ETS). Man-made greenhouse gases are largely responsible for warming the planet and causing climate change”.
Furthermore, the compromise deal made two days ago mentions that the backloaded allowances must be transferred directly to the MSR. Unallocated allowances that come from plants closures or are meant to be given to new ones will be discussed by the European Council (EC) under the ETS directive.
The decision to start the negotiations with the EC in order set up the MSR in 2021 was made after a long meeting. On the one hand, the biggest European economy, Germany, and the U.K. supported the starting date to be in 2017 so as to promote low-emission energy sources. Barbara Hendricks, the Environmental Minister of Germany, expressing her dissatisfaction for this deal said: “The nation will make further efforts in Brussels to ensure the reserve is introduced as soon as possible”.
On the other hand, Poland and a group of alliance countries stood up and voiced that the MSR should begin in 2021. This is mainly due to the fact that Poland is an economy that depends on coal and an earlier MSR date will lead to a huge financial impact.
MSR in 2021: Will it be enough for the climate?
The point that must be stressed out here is whether the decision will be for the sake of the climate or solely for the sake of the interests of some countries. It is a fact that the surplus of carbon allowances damages the smooth operation of this market in the short run and most importantly it can affect the reduction of the gas emissions by the EU ETS in the long run; thus making it inevitable to probably miss the targets set by the 2030 EU climate and energy framework.
The latter clearly reveals that 2021 is not the perfect time for MSR. The EU member states should decide according to what is good for the EU environment and not just to a nation’s interests. Europe has already 10 years of experience in this market and should be able to adjust and evolve faster. The standards and climate targets that have been set till 2030 are high and the EU countries have only 15 years to reduce greenhouse gas emissions by 20%; an action that so far has taken 25 years.
All in all, it is a very challenging procedure to be able to create the MSR and build up the EU ETS by linking it also to the international emission trading systems but the European institutions must put all their efforts in order to achieve that as soon as possible. The next meeting where the EC representatives will start the negotiations for the ETS reform is only 3 days away.
Let’s hope that it would be effective and a fair “Green compromise” will be struck for the entire Old Continent and the planet as a whole.