Boosting weak prices in European carbon market

The European Parliament’s Environment Committee has voted to adopt a market stability reserve (MSR) to boost weak prices in the European carbon market. The EU’s executive body, the European Commission, had proposed an MSR to come into place in 2021. But the European Parliament has voted for the reserve to come into force three years earlier than the Commission’s recommendation, towards the end of 2018. The aim of the MSR is to hold back emission permits from the EU Emissions Trading Scheme (ETS) when permits are abundant and carbon prices are low – a means of boosting the price of permits and stimulating action on emissions. The reserve is predicted by carbon market analysts to boost European market prices to between €17 and €35/t. If the vote is ratified by European Member States, allowances that are currently backloaded (a temporary measure to boost prices in the short term) would be transferred into the reserve rather than being put back into the market. In addition, 300mn unallocated allowances would be gradually made available to breakthrough industrial innovation projects.