Post-2020 EU ETS reform completed: final adoption taken by Council

27 February 2018 18:50 Source:ICIS

On Tuesday, 27 February 2018, the post-2020 reform saw its final rubber-stamp by Council and is therefore complete.

Main points

  • Vote took place in a meeting of General Affairs Council (link) as an A item, which means without discussion
  • A press release will be available shortly – (link)
  • Next steps:
    • Publication in EU official journal to become law – our sources confirmed to us that the file would most likely be published in the Official Journal by late March/early April
    • Transposition in national laws within 2 years

Analysis

  • This was the very last procedural step needed for adoption of the law, which means that it can now be considered as definite
  • Member States have now up to two years to cast the changes into national law
  • The provisions of the MSR (doubling of intake rate and invalidation) are legally held in a separate file (decision) and thus need not be transposed into national law
  • Recap of main points
    • LRF: Annual cap reduction of 2.2 % per year
    • MSR: withdrawal rate increased to 24% for first five years in operation (2019-2023), invalidation of allowances held in the reserve above the total number of allowances auctioned during the previous year in 2023
    •  Benchmarks:
      • Flatrate update of between 0.2% and 1.6% of the benchmark values used for phase 3
      • Hot metal benchmark: 0.2
    • Carbon leakage
      • Sectors where intensity of trade multiplied by emission intensity is above 0.2 are considered as carbon leakage endangered until 2030 and receive up to 100% of their benchmark as free allocation
      • Qualitative assessment possible for sectors landing between 0.15 and 0.2
    • Flexibility of auction share to prevent CSCF
      • 3% of cap can be moved from auctions to free allocation
      • If CSCF is not triggered, the allowances will be used for increasing the innovation fund (by 50 million) and the modernisation fund (0.5% of cap equal to 77.5 million
    • Modernisation Fund
      • Made up from 2% of the cap, equal to 310 million allowances
      • Addition of up to 77.5m possible if flexible auction share not needed to safeguard from CSCF
    • Innovation Fund
      • As a starting point 400 million allowances. of these, 325 million would be sourced from the free allocation share, 75 million from the auction share
      • Addition of up to 50 million EUAs possible if flexible auction share not needed to safeguard from CSCF
      • Another 50 million unallocated allowances from the MSR will be made available before the start of phase 4 to stock up the NER300 revenues
    • Derogation for power sector
      • Generally, maximum allowed is 40% of auction volume
      • Can be increased to 60% of auction volume if a member state also receives solidarity auction volume and uses a corresponding amount of allowances from the solidarity volumes to both the derogation and the Modernisation fund
    • EU Portal customers can find a full analysis in our previous analyst update

Stefan Feuchtinger is Senior Analyst - EU Carbon & Power Markets at ICIS. He can be reached at Stefan.Feuchtinger@icis.com

This is a condensed version of our analysis for ICIS EU carbon subscribers that was originally published on 27 Feb 2018 09:43 CET.

Our ICIS EU carbon customers have access to extensive modelling of different options and proposals. If you have not yet subscribed to our products, please get in contact with Neil Dewet (Neil.Dewet@icis.com).

By Staff Reporter