In a meeting held on Wednesday, member states granted Latvia the mandate to initiate trialogue talks on the Market Stability Reserve (MSR) after reaching a common position. The negotiations between the Latvian presidency, the European Commission, and the European Parliament are scheduled to begin on March 30th.
During the meeting, discussions were intense as Western European states advocated for more ambitious carbon trading reforms, while Eastern European states favoured a more conservative approach. Eventually, a compromise was reached, establishing a 2021 start date for the MSR. All backloaded allowances will be placed into the reserve in 2018 instead of re-entering the market in 2019 and 2020. This compromise averted the predicted price drop to €5 and below in 2020 had the allowances re-entered the carbon trading market.
Another significant point of contention was the fate of the unallocated allowances from Phase 3. Under current legislation, these allowances would be sold off at the end of the phase. It is estimated that the unallocated allowance total will range from 500 to 750 million tonnes and, along with the backloaded allowances, heavily influences price forecasts under the MSR. The compromise decision grants the European Commission the authority to review the EU ETS Directive and determine the fate of the unallocated allowances. It is expected that the EU Commission will recommend incorporating these allowances into the MSR to align with the goals of the reserve and prevent a surplus of allowances.
However, the trialogue negotiations may face challenges, as the European Parliament has taken a firm stance on the MSR and previously expressed dissatisfaction with the 2021 start date. MEP Ivo Belet will lead the parliament negotiations and holds a strong position following the environment committee’s vote in favour of an MSR start date before 2019. Both the Parliament and the Council must agree on the final text before it can be enacted as law.
