European Parliament publishes its draft report on emissions trading reform

The European Parliament Committee on the Environment, Public Health and Food Safety (ENVI) published a draft report on the European Commission’s proposal for a decision of the European Parliament and of the Council concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading scheme and amending Directive 2003/87/EC.

Specifically, the draft report supports a number of proposals made by the Commission for the creation of a market stability reserve (MSR). However, a number of amendments have been proposed, including:

·         Placing the 900 million “back-loaded” allowances directly into the reserve rather than having them auctioned in 2019 and 2020.

·         The specification that the Commission should include “a careful assessment of important demand drivers and of other environmental policies, and the ability of the market stability reserve to react to those drivers and policies” in the context of the annual carbon market report.

·         The shortening of the time-lag for measuring how market surpluses are measured with regard to the number of allowances that are placed into the reserve from two years to one.

·         The improvement of carbon leakage provisions assuring industry that the most efficient installations not  face undue carbon costs, that free allocation not expire, but that allocation respond to changing production levels.

·         The creation of a fund to support breakthrough innovation in low-carbon industrial technologies and processes to be supplied by a proportion of the allowances in the reserve.

·         A time horizon of three years after the establishment of the reserve for its review (rather than the fixed date of 2026), specifically evaluating the thresholds for allowance flows in and out of the reserve to tackle supply-demand imbalances.

ENVI will also consider the non-binding opinion of the Industry, Research and Energy Committee. Committee members will discuss the draft report on 3 December 2014. Amendments can be tabled until 11 December 2014. More information can be found here.

In February, ENVI will either adopt a mandate for direct negotiations with the EU member state governments or decide a plenary decision of the Parliament is necessary, in which case, this would extend the timeline.