Reforming the EU emissions trading system: An alternative to the market stability reserve
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Date
2015
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Abstract
Prices for emission allowances in Europe’s Emissions Trading System (ETS) have
remained low for many years. This fact has given rise to controversies on whether there is a
need for a fundamental reform of the ETS. Potential reform proposals include the introduction
of a price floor for certificates and a market stability reserve (MSR), which is a rule-based
mechanism to steering the market volume of allowances and the preferred approach of the
European Commission. With the introduction of the MRS, the Commission aims at increasing
and stabilizing certificate prices in the medium- and long-term. In this article, we alternatively
recommend retaining the ETS as it is, rather than supplementing it by introducing a minimum
price floor or a market stability reserve. Instead, mistakes from the past should be corrected
by a single intervention: the final elimination of those 900 million allowances that were taken
out of the market in 2014, but would again emerge in the market in 2019 and 2020 via
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Keywords
emissions tax, price corridor, emissions cap