The long story of ETS reform continues to be complicated. Expectations for the second half of 2014 are: progress in the Co-Decision process on the draft Stability Reserve Mechanism; more clarity on the new linear factor for 2021-30 in light of the European Council’s (hoped for) endorsement in October of the EU -40% greenhouse gas emissions reduction target for 2030; and a series of stakeholder consultation meetings on the post-2020 carbon leakage list and allocation rules.
Co-Decision on the draft Stability Reserve Mechanism (SRM) proposed by the European Commission in January started with initial exchanges of views this spring, but has been on hold during the European Parliament elections. The process can now resume, but progress is expected to be slow until October. In the Parliament, the EPP Group needs to appoint a new rapporteur as Sophie Auconie was not re-elected. This is expected to happen during July, following confirmation of which MEPs will be members of the new ENVI Committee. The new rapporteur might be able to publish their draft Report in October/November, leading to a first reading committee vote in December/January. In the Council Environment Working Party, discussions are still “preliminary”, but we understand that most Member States are favourable towards the SRM in the context of an overall 2030 deal, while wanting more information from the Commission about the proposed reserve trigger parameters. To help answer these questions, the Commission is holding an expert meeting on the SRM on 25 June. Poland is the only Member State so far opposed. Germany has called for the SRM start date to be brought forward to 2017 and for the 900m back-loaded EUAs to be transferred directly into the new reserve. The UK is likely to concur with Germany. France has published a non-paper looking at alternative parameters. We would expect the Environment Council to be able to take a first reading position after the October European Council decision on the 40% greenhouse gas target, either at its meeting of 28 October or 17 December.
The Commission’s January proposal for a 2.2% ETS linear factor for the period 2021-30 is as yet only a recommendation in light of the proposed 40% target. Moreover the Commission has made clear that draft legislation on the linear factor will only be tabled as part of a full 2030 package. This means a slow timetable. Assuming that the European Council endorses 40% in October, the new Commissioners taking office in November are expected to take until summer 2015 to prepare draft legislation, and might delay further until after the December 2015 Paris climate negotiations.