EU Lawmakers Draft Compromise Fixes to Toughen Carbon Reform

(Bloomberg) -- Lawmakers in the European Parliament’s environment committee agreed a set of draft compromise changes to a sweeping overhaul of the European Union’s carbon market in a push to further strengthen the cap-and-trade program.

Representatives of the biggest political groups in the ENVI committee signed off on joint proposals to toughen carbon permit supply controls and improve existing shields against price shocks in the EU Emissions Trading System. They will be put to a vote on May 16, when the committee casts the ballot on the market overhaul, said Michael Bloss, a German overseeing the reform on behalf of the Greens.

“The European Parliament’s position has always been to have more ambition,” he told reporters on Friday. “The ETS is the biggest climate instrument we have in the EU.”

The reform of the carbon market was proposed by the European Commission in July as part of a massive package to align the bloc’s policies with a stricter emissions-reduction target for 2030. To enter into force, it needs backing from EU member states and the European Parliament.

Representatives of the European People’s Party, Socialist and Democrats, Renew and Greens agreed to go beyond the Commission’s proposal to strengthen the Market Stability Reserve, a supply-control mechanism that helped shore up a glut of emissions permits in the past couple of years. 

Under their plan, the reserve would start absorbing excess allowances when their total number exceeds 700 million. That compares with 833 million sought by the Commission. The intake rate, or the percentage of carbon permits taken into the reserve from the market, would stay at 24%.

Read more: EU Watchdog Says Carbon Market Needs More Monitoring

The groups also agreed to lower the intervention threshold in case of carbon price spikes. Their compromise amendment would pave the way for the EU to step in if for more than six consecutive months the average price is more than twice the average price during the two preceding years. The current rules require a higher trigger of a three-times increase.

In such a case, the Commission would be required to call within seven days a meeting with national governments to assess if the price development corresponds to changing market fundamentals. If it doesn’t, supply of allowances would be increased, including an option to release 100 million allowances from the MSR over a period of six months.

Political groups are still divided over a new carbon market for road transport and heating fuels and over the rules on access to the market. The industry committee in an auxiliary vote last month called for the exclusion of financial institutions in a bid to prevent speculation. In the environment committee, which leads parliamentary work on the overhaul, the EPP wants to endorse such a restriction but it doesn’t have majority backing, Bloss said. 

Senior lawmakers in the ENVI committee are due to meet again on Tuesday to discuss further room for compromises ahead of the May 16-17 vote. In the next step, the whole EU Parliament will cast the ballot in June to decide about the final shape of its negotiating position on the EU ETS reform for talks with member states. Those will start after the summer break in August.

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