Council Allows Back-Loading of the EU Emissions Trading Scheme for 2013-2020 (900 Million Allowances)

The Council has decided today, 24 February 2014, not to object the proposal put forward by the European Commission to back-load the EU Emissions Trading System (EU ETS), i.e. to postpone the auctioning of 900 million GHG allowances for a couple years to address the oversupply in the market.

 

The back-loading of allowances will not reduce in itself the number of allowances to be issued, but will postpone the moment of their release on the market. As estimated in the proportionate impact assessment of the risks of carbon leakage for particular industrial sectors, the idea is that the "back-loading can rebalance supply and demand in the transition to phase 3 and reduce price volatility without any significant impacts on competitiveness" (access document here). 

 

Back-loading has consequently for purpose to address the surplus of emission allowances existing on the EU ETS, a surplus which has, among other things, depreciated the value of the emission allowances. At the start of phase III (2013-2020), the surplus was estimated at 2 billion allowances, which is twice its level at the beginning of 2012.

 

Among the reasons for this high surplus, the European Commission counts: "record use of international credits, auctioning of phase 2 allowances and remaining allowances in the new entrant reserve, early auctioning of phase 3 allowances, and sales of phase 3 allowances to generate funds for the NER300 programme" (Source: European Commission). The economic crisis can be added to the list.

 

The adoption of back-loading required amending the Auctioning Regulation, subject to the regulatory procedure with scrutiny. The European Parliament gave its consent on the amendment on 10 December 2013 and formally on 6 February 2014. Today's decision by the Council makes the legislative procedure complete and allows the Commission to adopt the amending regulation. The formal decision was taken at a meeting in another formation than Energy of the Council, and therefore without discussion. On 16 December 2013, as a first step, the European Parliament and the Council decided to amend the EU ETS Directive, and in particular the provisions on the timing of auctions of GHG emission allowances (press release, 16.,12.2013).

 

As part of the negotiations between the EU institutions, it was agreed that such an adaptation could only take place once, in exceptional circumstances and during the third trading period, and only for a maximum number of 900 million allowances.

 

Reference: Press release 6801/14, Council of the European Union, 24 February 2014.