Officials from EU member states reached a common position late on Wednesday regarding the Market Stability Reserve (MSR). The agreed-upon position states that the mechanism will absorb the 900 million backloaded allowances starting in 2018 but will begin operating in 2021. This launch date contradicts the European Parliament's stance, which advocates for an earlier start. Latvia, the current EU presidency holder, initially proposed a start date "no later than 2021," but member states have now agreed on a firm 2021 launch date, according to a government spokesperson. The 28 EU governments also resolved the issue of unallocated EU Allowances (EUAs), agreeing that the European Commission will determine their fate as part of the upcoming review of the Emissions Trading System (ETS) Directive.
The countries have authorized Latvia to enter trialogue talks with the European Commission and the European Parliament to finalize the text for the MSR. The fate of unallocated allowances will be a key point of discussion during these talks. Germany, Britain, and a group of Western European countries favoured an earlier start for the MSR, while Poland and a blocking minority initially refused to deviate from the 2021 date proposed by the European Commission. Both the Parliament and the Council must agree on the final text for the legislation to be enacted.
The breakthrough in the agreement came after initial attempts earlier in the day failed to find common ground, causing EU carbon prices to drop by over 4%. However, prices rebounded in the afternoon upon hearing that Western EU governments were pushing for a common position. Traders have mixed expectations regarding how prices will react the following day, with some anticipating a price jump due to increased certainty, while others express concerns over the potential overhang of unallocated EUAs. The position of member states puts Latvia on a collision course with the European Parliament, as senior MEPs have already stated their opposition to a 2021 start date. MEPs are in favour of an earlier start, with strong support from at least 15 governments.
