The EU Environment Council has agreed new measures to reform the Emissions Trading System (ETS).
It has agreed to create a market stability reserve (MSR) for the greenhouse gas emissions trading scheme, a ‘cap and trade’ system designed to cut pollution by making businesses pay for producing greenhouse gas emissions.
Companies can buy and sell emission allowances, each giving the right to emit one tonne of CO2 or the equivalent of another greenhouse gas.
The MSR aims to tackle the imbalances in supply and demand of carbon credits as there was a significant surplus of allowances in the EU ETS in 2013.
When the total emission allowances exceed a certain threshold, a percentage of allowances will be automatically withdrawn from the market and placed into the reserve. In the opposite case, they will be returned from the reserve to the market.
The MSR will be established in 2018 and come into effect from January 2019.
The so-called “backloaded” allowances – around 900 of whose auctioning was postponed from 2014/16 until 2019/20 – and unallocated allowances from the third phase of the EU ETS will also be placed in the reserve.
The Council has also agreed the EU negotiating approach to the Paris COP, setting out a “strong and positive position” for the final negotiations to secure an ambitious global deal to tackle climate change.
Energy Secretary Amber Rudd said: “I welcome today’s agreement, which the UK has been driving forward and will enable businesses to remain competitive and grow as we move to a low carbon future.
“With just over two months to go until the climate change conference in Paris we are working hard to land a robust global deal that will mark the beginning of a global step change in efforts to limit global warming to 2°C in the long term.”