A "soft price cap" for the EU's emissions trading system (ETS) could come before a general ETS review is presented in July, EU climate commissioner Wopke Hoekstra has said. But he noted a "huge degree" of uncertainty as to timing.
The EU plans to first deal with the ETS' market stability reserve (MSR) and benchmarks in the "next couple of months", before the previously scheduled ETS review in June-July, as the MSR and benchmarks are "intellectually" easier to reform, Hoekstra said at a meeting of EU climate and environment ministers.
The MSR was introduced in January 2019 in a bid to tackle oversupply in the EU ETS. It absorbs the difference between 833mn and the total number of allowances in circulation (TNAC), if the TNAC stands between 833mn-1.096bn, or 24pc of the difference if the TNAC is above this range. And the MSR would release 100mn allowances into the system if the TNAC falls below 400mn. The mechanism was scheduled for review in July alongside the more general EU ETS review.
It is "hugely important" that the EU continues with the ETS, Hoekstra said. But European Commission president Ursula von der Leyen's proposal in a letter to EU leaders to use the MSR to bring down price volatility in the ETS is a "wise" thing. "The last thing we want is price hikes and volatility," Hoekstra said.
The "largest" volatility for the ETS in the past couple of years was related to statements made during an industry meeting in Antwerp in February, Hoekstra said. "That talked down the price of ETS allowances dramatically and actually fuelled the volatility that we try to prevent," Hoekstra said.
Leaving the ETS would probably not be beneficial for Poland, according to Polish climate and environment state secretary Krzysztof Bolesta. "If Poland were to say that this [ETS] charge does not apply in Poland, then our partners in the EU would have every right to stop importing those goods," he said. Poland has received around €30bn ($35bn) through ETS funds, Bolesta said. But von der Leyen's letter to EU leaders "piqued" Poland's interest, especially regarding the MSR, he said. "But there are still few concrete proposals."
Bolesta wants to give "more time" to industries under the EU ETS, by adjusting the fall in the system's supply cap. And sectors covered by the EU's carbon border adjustment mechanism should receive free allowances, he said.
Soft ETS capping has to have a "real" result on markets, Hungary's environment state secretary, Aniko Raisz, said. Raisz also called for the exclusion of gas-fired power plants from the system, and to extend the free allocation of allowances. She also wants the launch of the upcoming ETS 2 — which covers road transport and buildings — to be pushed back to 2030 at a "bare minimum". "We think that ETS 2 is not the tool to reach climate neutrality." ETS 2 is currently scheduled to start in 2028, having already been delayed from 2027 in recent amendments to the European Climate Law.
"ETS 1 is for us, as the largest economy within the EU, the most important price signal," German climate minister Carsten Schneider said. "We would like to make minor adjustments" as the ETS is a specific "burden" for some benchmarks, particularly in the chemicals industry, Schneider said. Benchmarks are used to calculate free allocations for energy-intensive industries.
"I've advocated for slightly extending free allocation [of allowances]... and discussing the question of how long we allocate certificates at all — that we make it possible even beyond 2039," Schneider said.
