A new agreement removing the surplus in allowances in the EU's emissions trading system (ETS) has been welcomed by environmentalists, as it would significantly improve the efficiency of the carbon policy in the EU.
Nowadays, nearly half of the continent’s emissions are covered by the ETS, the world’s largest carbon market, which sets a cap on CO2 output and forces firms to buy or sell allowances to stay within its boundaries.
Recession and lavish handouts to industry have contributed to a glut of around 2bn allowances but a new market reserve will now start removing roughly the same amount from the market in 2019.
The reserve will work by removing an estimated 1.5-2bn surplus carbon allowances in total, with 610m of them being fast-tracked directly into the reserve. Up to 100m carbon credits will automatically be released back onto the market when carbon prices are ‘short’.
The new ETS reform is now expected to be rubber-stamped by the European parliament by July, and by the European council shortly after.