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

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