On 24 February, the European Parliament Committee on the Environment, Public Health and Food Safety (ENVI) voted on the reform on the European Emissions Trading System (EU ETS). The ENVI Committee vote backed the European Commission’s (EC) proposal for the creation of a market stability reserve (MSR), alongside additional measures that address the 900 million backloaded allowances that are temporarily being removed from the market following a decision by the European Parliament in July 2013. However, compared to the European Commission’s proposed 2021 start date, the parliamentary vote called for an earlier implementation of these reforms, operational by the end of 2018.

The goal of the MSR is to address the current surplus of about 2 billion allowances in the market, as well as to help control extreme supply and demand fluctuations in the future. The reserve would automatically adjust the supply of allowances on the European carbon market when the total number of allowances falls outside a pre-defined range. If the total surplus exceeds 833 million allowances, 12% of the surplus will be placed in the MSR. However, if the total surplus falls below 400 million allowances, the MSR will inject an additional 100 million allowances into the market at the next auction. The ENVI Committee voted in favour of establishing the MSR in 2018, to become operational by the end of that year.

Additionally, the ENVI Committee also backed the transfer of the 900 million backloaded allowances into the MSR, rather than returning them to the market in 2019-2020. They further supported shifting an additional 750 million unallocated allowances - previously set aside for new entrants or stemming plant closures - into the MSR.

The parliamentary vote further proposed an ‘Energy Innovation Fund’ to help industry transition to low-carbon technologies, which would be funded by profits generated from the auctioning of 300 million thus far unallocated allowances. The Committee also agreed that at least 50% of the auction revenue Member States receive must go towards climate-related investments. Previously, this earmarking had only been voluntary.

The ENVI Committee vote gave Ivo Belet, Member of the European Parliament (MEP) and Rapporteur of the ETS reform, a mandate to initiate negotiations with Member States. A final decision on the EU ETS reform will need the support of both the European Parliament and the Member States.