Reforming the Market Stability Reserve of the EU Emissions Trading System needed

29.03.2021
Reforming of EU ETS

The reform of EU ETS will be part of the comprehensive legislative package “Fit for 55” that the European Commission has announced for the second quarter of 2021. Apart from measures to align the cap with a higher economy-wide emission reduction target, in particular the Market Stability Reserve (MSR) will be reviewed. Is the MSR designed in way that it can fulfil its purpose to provide greater supply-side flexibility under the cap and function as necessary safeguard to the long-term effectiveness of the EU ETS?

In the online workshop the MSR reform options with a view towards strengthening its stabilization function during the fourth trading period were discussed. Jan Weiß set the scene with his introduction to the overall reform debate around the ETS and introduced the project “Structural development of the EU ETS after 2020”.

All speakers agreed that an MSR reform is necessary in the context of an ETS with stepped up ambition. Verena Graichen identified the intake-rate as the most important element to strengthen whereas Marcus Ferdinand argued that adapted thresholds should be at the centre of the reform. The difference might be due to diverging expectancies whether the market will be long or short in the future: if the market is long, intake-rates are more decisive whereas in a shorter market the threshold play a major role. Grischa Perino argued that a price-based trigger would be preferable to the current quantity-based scheme as it would act quicker and include expectations of the future. Adam Berman recommended not the alter such a fundamental building stone of the MSR as in the ETS reform many elements are expected to change, and some stability would be desirable. There were also diverging views whether to include aviation demand for stationary EU ETS allowances into the MSR calculation rationale.

The presentations held at the online workshop can be downloaded below. Furthermore, the online workshop was recorded. Due to technical difficulties the first 20 minutes of the online workshop had to be added later with recordings made in the days following the online workshop.

Presentations from the online workshop:

“Structural Supply Side Management in the EU ETS – Reviewing the MSR”: Verena Graichen (Oeko-Institut) presents findings of a forthcoming research report

“EU ETS Stability Mechanism Needs New Design”, Grischa Perino (University of Hamburg)

“EU ETS Reform and MSR Review – An Analyst Perspective”, Marcus Ferdinand (ICIS)

Video

Recording of the online workshop "Reforming the Market Stability Reserve of the EU Emissions Trading System"

Background

This event was part of the project “Structural development of the EU ETS after 2020” commissioned by the German Environmental Agency (UBA) and carried out by Oeko-Institut, Fraunhofer Institute for Systems and Innovation Research (ISI) and German Institute for Economic Research (DIW).