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EU countries take a small step to address carbon market oversupply

BRUSSELS 28 February 2017. Today the EU environment ministers adopted their position on the EU Emissions Trading System (EU ETS) revision. While the ministers proposed some improvements to the original proposal, more is needed to align one of the EU’s key climate laws with the Paris Agreement on climate change.

To address the chronic glut of surplus allowances on the carbon market, ministers proposed to double the intake of the so called Market Stability Reserve (MSR). They also agreed on the annual cancellation of a number of pollution permits held in the Market Stability Reserve starting in 2024.The reserve is meant to temporarily remove excess allowances from 2019 onwards.

While a step in the right direction to deal with the massive oversupply, the proposed measures will not bring the EU ETS in line with Europe’s climate commitments under the Paris Agreement.

The Member States further agreed -due to pressure from Germany and others- to allow more free pollution permits to be given to industry in addition to the 6.3 billion free permits industry is already set to receive in the next decade.

Dr Agnes Brandt, Senior EU Policy Officer said:

“Auctioning, not free handouts, is the default of a ‘polluter pays’ system. Companies have been using free pollution permits as a life support, thereby locking in emissions in Europe. Only smart policies leading to a strong carbon price signal will push industry to innovate and modernise, and guarantee their long-term global competitiveness.”

Agnes Brandt:

“It is imperative that the final agreement will enable a coalition of the willing countries to jointly implement additional measures, such as the cancellation of allowances. Without complementary and national measures to reduce emissions in Europe, we will not meet our commitment under the Paris agreement.”

As a next step, the European Parliament, the EU Member States and the EU Commission will start informal negotiations, the so called trilogues, to align their positions in order to adopt the final law.


Media contacts

Dr. Agnes Brandt – Senior EU Policy Officer
[email protected]
Tel: +32 483 22 75 71

Kaisa Amaral, Press Officer
+32 485 07 68 90
[email protected]

Notes to editors

  • Ministers decided to lower the auctioning share by 2% from 57% to 55% in case the cross sectoral factor is triggered. The European Parliament proposes to lower it by 5% to 52%. This means that industry is able to receive an additional 310 million (55%) or 775 million (52%) free pollution permits, even though in the past the generous hand-out of free permits has resulted in over EUR 25 billion windfall profits.
  • The Market Stability Reserve intake of surplus allowances is temporarily doubled from 12% to 24%.
  • Hovering around 5 euros per tonne, the carbon price is currently not encouraging de-carbonisation of industries. It is estimated that the price would have to be at least 40 euros / tonne to have the desired effect.
  • The linear reduction factor of 2.2% as proposed by the European Commission is not in line with the emission reduction pathway under the Paris Agreement. The linear reduction factor needs to be raised to at least 4.2% in order to bring the ETS in line with the 1.5°C goal. A linear reduction factor of 2.4% would only deliver 80% reductions by 2050.


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