European Council approves carbon market reform

by Reuters
Tuesday, 27 February 2018 14:00 GMT

FILE PHOTO: Steam rises from the cooling towers of the coal power plant of RWE, one of Europe's biggest electricity and gas companies in Niederaussem, Germany, March 3, 2016. REUTERS/Wolfgang Rattay/File Photo

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The reform is "a significant step towards the EU reaching its target of cutting greenhouse gas emissions"

BRUSSELS, Feb 27 (Reuters) - Long-awaited reforms to the European Union's carbon market recevied the final green light from the EU Council on Tuesday in a bid to shore up prices of the cap-and-trade system designed to cut greenhouse gas emissions from industry and the power sector.

The changes to the EU's Emissions Trading System (ETS), which broadly involve reducing the number of permits in circulation, were hammered out in November after more than two years of debate in Brussels between EU policymakers, political groups and EU nations.

The European Council, which represents the bloc's 28-member states, approved the reform on Tuesday.

European carbon prices have risen almost 20 percent since the start of 2018 on expectations of lower supply under the reforms and also received a modest boost on Tuesday.

The ETS has suffered from too many permits, rendering it inefficient. The reform deal seeks to strike a balance between encouraging industries to emit less carbon while avoiding driving them abroad to escape regulation.

"The revised ETS directive is a significant step towards the EU reaching its target of cutting greenhouse gas emissions by at least 40 percent by 2030," the European Council said in a statement.

To strengthen prices, it will double the rate at which the scheme's Market Stability Reserve (MSR) soaks up excess allowances, as a short-term measure to beef up prices.

In 2023, a new mechanism to limit the validity of allowances in the MSR will be put in place.

The overall cap on the total volume of emissions, known as the linear reduction factor (LRF), will be reduced 2.2 percent each year.

Other measures aim to help defend the competitiveness of the bloc's industry. (Reporting by Robert-Jan Bartunek in Brussels Additional reporting by Alissa de Carbonnel and Susanna Twidale in London Editing by Edmund Blair)

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