Provisional EU ETS post-2020 deal expected at 8 November trilogue

13 November 2017 11:13 Source:ICIS

On 8 November, negotiators from the European Parliament, council and commission will meet to continue discussing the remaining issues regarding the post-2020 EU emissions trading system (ETS) reform. A provisional deal is likely to emerge as a result of this trilogue meeting.

Main points

  • Date and time: Wednesday 8 November, start time 18:00 CET
  • The event is not public, any results will be reported via social media or participants being quoted in media
  • This is the sixth meeting after the start of the trilogues in April 2017
  • The last trilogue meeting on 11 October did not result in a final agreement with delegations from the European Parliament and council disagreeing on the inclusion of an emission performance standard (EPS) that will only provide modernisation funding to projects with emissions below 450 g/kWh
  • The Estonian council presidency decided not to update the current council negotiation mandate
  • A group of seven countries (Denmark, France, Germany, Luxembourg, Netherlands, Sweden and the UK) published a view of a final trilogue agreement
  • The signing member states expressed their support for an EPS and their openness for a step towards the parliament position as “there is significant support for such approach within the council”
  • They speak against the idea of an unconditional increase of the modernisation fund in order to make a step towards the parliament’s claim for a “just transition fund”
  • The increase of the fund volume was highlighted by some member states, most prominently Poland, in the past as the country claims to require time and funding to shift the power stack away from coal

Analysis

  • The current discussion among member states and the decision by the Estonian presidency not to adopt a new negotiation mandate highlights the controversy of the remaining issues at stake and shows that member states do not act in concert
  • The parliament delegation  was firm following the last trilogue to not let drop the EPS
  • The seven member states mentioned above belong to an informal group of member states previously referred to as the “Green Growth Group” (GGG), formerly consisting of 14 member states in total, pushing for more a more ambitious ETS set-up
  • Assessing the dynamics ahead of Wednesday’s negotiations, we expect a provisional deal to emerge from the upcoming trilogue negotiations
    • A final deal seems unlikely within the current council mandate – so an ex-post mandate will likely have to be acquired
    • This means that the Estonian presidency would have to take the outcome to the EU's committee of permanent representatives (Coreper) for a “take it or leave it” approach with the very strong recommendation to support it
    • Coreper is made up of member state representatives, preparing for council decisions
    • Dynamics in council
      • For a qualified majority in council, at least 55% of the member states (16 in total) representing 65% of the population are required to vote in favour of the trilogue outcome to adopt it
      • The seven member states  co-signing the view do not have a qualified majority in council accounting only for 48.5%
      • Their position, however, is likely supported by the wider GGG (Belgium, Estonia, Finland, Italy, Portugal, Slovenia and Spain)
      • Together, these 14 member states account for 75.5% of the EU population
      • Consequently, only two more countries would be necessary to reach the combined threshold of 16 member states representing at least 65% of the EU population
      •  Austria, Malta, Ireland or the Czech Republic are likely candidates for support
  •  As the EPS presents a red line for parliament and seems to be supported by a majority in council, an EPS or a mechanism to exclude fossil generation from funding through the modernisation fund will most likely be part of such a deal
  • Such a deal could also include a partial/conditional increase of the modernisation fund to get the buy-in of some eastern European member states
  • We do not expect the Coreper to update the negotiation mandate for the Estonian presidency during a meeting on Wednesday morning ahead of the trilogue negotiations

Market impact

  • We expect a short-lived bullish sentiment should legislators find a provisional final agreement on 8 November, likely followed by some profit taking
  • However, prices will likely continue to trickle up during the following days and perhaps weeks, with market participants expecting formal adoption by the Coreper
  • Should the trilogue negotiations on Wednesday end without a provisional agreement, we expect a bearish correction
By Staff Reporter