Europe readies armoury for carbon market endgame
Early reform proposal is not without trust issues
Welcome to Carbon Risk — helping investors navigate 'The Currency of Decarbonisation'! 🏭.
Under persistent pressure from some of Europe's energy intensive industries, Commission President Ursula von der Leyen promised a proposal to "increase the firepower" of the Market Stability Reserve (MSR), the mechanism governing the excess supply of EU emission allowances (EUAs).
Ahead of the Easter break, von der Leyen delivered on that promise.
On 1st April the Commission announced that it is proposing to stop the automatic invalidation of any EUAs held in the MSR above 400 million. Instead these so-called "invalidated" EUAs will be held in the reserve and "kept as a buffer that can support market stability."
Not one for April Fools jokes, the Commission's proposal sheds light on the inherent complexity underpinning the running of the EU's emissions trading scheme: the lifespan of an EUA, governance of the market, the rules of engagement, and ultimately, what it all means in terms of trust.
The proposal still needs to be approved by the EU Council and Parliament. A comprehensive review of the MSR will take place in July where there may be further amendments. Given that the MSR is a directive in its own right, the changes could come into force by the end of the year.
Before we consider the implications of this proposal, lets do a quick recap of why we're discussing this now, starting with the question, what even is an "invalidated" EUA anyway?
Read the rest of this article with a 30-day free trial*
*and get access to the entire archive!
