CAN Europe Position on the Market Stability Reserve

Climate action

On May 5th 2016 the Council and the European Parliament have come to a compromise on the Market Stability Reserve (MSR). CAN Europe called for strong improvements and some of them were incorporated.

Summary of CAN Europe’s Position on the Market Stability Reserve

The European Commission’s proposal for a Market Stability Reserve published on 22 January 2014 aims to create more price stability in the EU Emissions Trading System (EU ETS) from 2021 onwards.

Under the proposal, EU ETS allowances would automatically be put into the Market Stability Reserve when there is a large oversupply of emission allowances and released back into the market when allowances are scarcer. The Market Stability Reserve is a necessary but insufficient step towards the structural reforms needed to turn the EU ETS into an effective instrument that encourages clean investments and controls emissions. Deeper reforms of the EU ETS are required, and these should be part of the legislative proposals following the European Council conclusions on the 2030 framework that were adopted in October 2014.

However, this should not distract from the important task of starting a Market Stability Reserve as soon as possible so that it can help stabilise prices and send an adequate price signal. The Commission’s proposal on the Market Stability Reserve needs to be strengthened. It currently fails to address the immediate problem of oversupply in the EU ETS, offers no structural solution to correct this problem in the longer term, and features no limit on the amount of allowances that can be stored. This could weaken future climate targets, including the EU’s 2030 emissions target, when these allowances are re-introduced onto the market. We therefore propose the following improvements to the European Commission’s Market Stability Reserve proposal:

  1. Start the Market Stability Reserve in 2016
  2. Prevent back-loaded and unused allowances from re-entering the market
  3. Make adjustments stronger when the supply is large
  4. Limit the surplus from being used as future rights to pollute

Download: CAN Europe’s Position on the Market Stability Reserve