Eurelectric, the EU electricity industry body, has urged the European Union to raise the linear reduction factor (LRF) in the EU Emissions Trading Scheme (ETS) and reconsider the parameters of the market stability reserve (MSR). The proposal comes as members of the European Parliament prepare to vote on the review of the EU ETS directive, which could potentially impact the supply of allowances after 2021.
Several amendments have been put forward for consideration, including rebasing the cap to 2019 emissions, increasing the LRF, revisiting the MSR parameters, and cancelling allowances. While reports suggest a consensus is forming on some measures, the outcome will depend on the upcoming vote and subsequent negotiations with the EU Council and the European Commission.
Eurelectric specifically proposes raising the LRF to 2.4% and doubling the intake rate of the MSR to 24% of all allowances between 2019 and 2023. The industry body also recommends “futureproofing” the MSR by lowering the surplus threshold at which it is triggered from 833 million to a range of 300-600 million across phase four (2021-2030), considering reduced hedging demand.
In addition, Eurelectric suggests increasing compensation for electricity generators in lower-income member states resulting from Article 10c and Article 10d of the draft ETS directive. It also advocates for the removal of surplus allowances arising from any overlap with renewable and energy efficiency mechanisms.
The outcome of the vote and subsequent negotiations will shape the future direction of the EU ETS and its effectiveness in driving emission reductions within the European Union.
