Fast-track MSR introduction

EIGHT, five, six, four, and now five euros per tonne. Price volatility so far this year show how Europe’s emissions cap and trade market (ETS) remains bumpy, weak and thus ineffective at changing behaviours. The plot line below is hardly a curve.

ets-msr-blog-eex

2016 EUA spot (€) via EEX.

But weren’t such instabilities supposed to have been fixed? An ETS ‘market stability reserve’ (MSR), agreed last year and operating as from 2019, is intended to adjust allocation, stabilise supply-demand balance and so steady prices.

Evidently it is yet to have such an effect. Consequently levels of confidence in a meaningful ETS contribution to urgent EU GHG emission reductions and clean-tech innovation are back in the doldrums.

If the scheme is not to be abandoned then the next few months are crucial. Five or more years of waiting would be too late as in all quarters political support ebbs away. Trust in ETS should be restored without delay, within the proposed amending act now before Parliament and Council.

Ah … but if only it were so easy,” some may reply.

It’s true the MSR negotiations were sometimes fraught. But in the end EU institutions did find a reasonable outcome on its general design, including start date, trigger thresholds, treatment of back-loaded and other unused allowances, reporting and review. None of these elements need now be re-opened.

However by far the biggest issue the ETS still struggles with is the huge surplus of excess tickets swamping the market. Under present rule, it will take around a decade to move most of these to the reserve, thus prolonging the market instability pictured above.

But what if initial MSR transfers could happen more swiftly? What if e.g. instead of 12% each year of surplus allowances moved from auctions to reserve  (applied at 1% per month) this rate is doubled for the first three years (24% per year, 2% per month)?

The impact of such an amendment, assuming 2.7 billion allowances in 2017 circulation, would be an extra 750 million tonnes approximately set aside, on top of a similar amount under the exiting rule. If a 24% rate ran for 4 years, the extra would be around 900 million.

Here is how the amendment could look in the present proposal :


Amendment X
Article X new
Amendment to Decision (EU) 2015/1814

Decision (EU) 2015/1814 is amended as follows:

In Article 1 the following paragraph is inserted after paragraph 5:

5a. In derogation from the first sentence of paragraph 5, for the years 2019, 2020 and 2021, the number of allowances that shall be deducted from the auctioned allowances and placed in the reserve shall be equal to 24% of the total number of allowances in circulation.


Such an amendment can in theory be tabled by any EU institution although in practice EP 1st reading committee deadlines have passed. Therefore this points to one or more Council delegations or the Commission that should act first.Since in terms of a reversal to single market harmonisation the EC has the most to loose if ETS is lost, it should act now. ( Article 250 empowers the Commission to amend proposals at any time during negotiations.)

Both senior EC officials and the EP rapporteur Ian Duncan have in recent days signalled that MSR adjustment is an option that should be considered.

Lastly it is worth reminding that an MSR amendment will remain consistent with the 2030 framework agreed by the European Council two years ago, in particular section 2.3 which specifically endorses “an instrument to stabilise the market“. ❧

#eu2016sk agendas

bratislava-castle-day

Slovakia will chair Council meetings during the second half of 2016. Here at-a-glance are the dates and draft agendas for the ministerial sessions.

Environment Council

  • 17 October: Luxembourg
    • Non-ETS legislative proposals: policy debate (web-streamed)
    • UN climate meetings, Marrakech: conclusions
    • UN biodiversity meetings, Cancun: conclusions
    • Water policy: conclusions
    • A.O.B: CITIES, nature law, transport
  • 19 December: Brussels
    • ETS legislative proposal: poss. general approach
    • Waste package (4-parts): progress report
    • Updates on international meetings x4

Energy Council

  • 5 December: Brussels
    • Energy efficiency package (two proposals): policy debate
    • External relations: exchange of views
    • AOB: Updates on other matters (see list in source doc)

Source document: Provisional Council agendas during the Slovak presidency.

Informal meetings

Environment and energy ministers will also hold back-to-back informal meetings in Bratislava on 11-13 July. eu2016.sk/en

Outline agenda

  • Monday 11 July : Water
  • Tuesday 12 July (morning): Climate international
  • Tuesday 12 July (afternoon): Joint session with energy ministers
    • financing
    • governance
  • Wednesday 13 July: Energy only

Documents (environment part)

 

Draft planning template

plan

The Commission met today with member states to discuss a first draft template for prospective “national energy and climate plans” for the period after 2020. A copy of the document can be found here. Depending on the outcome of the ongoing discussions, the template could form part of an EC legislative proposal by the end of this year. Parliament, the Commission said last week, would be consulted later. ❧

Planning, reporting?

Governance

In this blog I want to share and then comment on four recent slide decks from the EC Secretariat General’s 6 October 2015 “technical working group” (TWG) of member state representatives on future EU framework (laws) for energy and (perhaps) climate.

First the four slide decks (PPT as PDF):

This is all quite jigsaw that we need to work through step-by-step. So next a caveat: the discussion below is only about this SG-led process and so is without prejudice to other discussions on the same topic in Council and in Parliament.

On an analysis, it is perhaps best to start with four issues on which the documents are silent:

  1. Parliament: What is Parliament’s role in the process, if any? Parliament insists it must be involved but, if it were on some way excluded, what would happen to planning and reporting legal requirements in existing laws? Unless Parliament agrees to repeal them they will carry on.
  2. Non-climate environmental acquis: Climate does not have a dedicated legal base in the treaties. Climate action has always relied on the environment chapter, since the limitation of greenhouse gas emissions is a control on air pollution. Other important air pollution legislation overlaps with greenhouse gas controls, for example the Industrial Emissions Directive 2010 and one of its precursors the Large Combustion Plant Directive 2001. As operators of old and inefficient coal plants choose not to upgrade their installations to IED-LCP standards, so the resulting drop in coal burn is a climate benefit as well as one for local air pollutants.
  3. Competition: State aid, merger control and other anti-competitive practices all have significant impacts on energy trading. Controlling these properly is essential for the realisation of a single market. But could a new national planning regime lead to competition controls being curtailed or abandoned? The SG documents are silent. Past practice on state aid e.g. has meant that new EU laws usually contain a recital reminding readers that the application of the new law is without prejudice to requirements for state aid control, which from a basic structural point of view is acceptable.
  4. Euratom: Are Euratom requirements in scope or not? If only some, which ones? The 2011 radioactive waste management directive e.g. has planning and reporting requirements. The (bad) situation in many member state in this area would certainly benefit from more transparency at the EU level. But because the SG remains vague on scope, we don’t yet know if it will.

Next are objectives and indicators. Here the SG slides are just as fuzzy. First, the docs suggest, rather than dimensions, that there are “energy union” objectives though in fact none exist. Second the slides reiterate a proposal for “key indicators”, first made January 2014, still without saying what these could or should be. There is however a table of potential “the indicators” (not “key“) as follows:

SG indicators

The third slide deck does says we may see more specific proposals on 18 November, so perhaps things change soon. Likewise, the energy union country fact sheets (‘fiches’) remain secret for now but should also be released on 18 November.

Overall clearly this is still a SG work in progress. There was no initiative on the topic listed in the EC’s 2016 work programme adopted yesterday. The next meeting of the TWG is listed for 15 December 2015.

Finally, on governance more generally, see also my first blog on this topic on 11 February 2014. ☙

What energy union isn’t

EU flag held aloft

Perhaps it helps to remind ourselves what energy union isn’t? Energy union isn’t a new thing, such a new European treaty or agency. It isn’t a new single legal framework, or a new single package of laws or a new single structure of any kind. For these reasons I prefer to avoid to writing energy union with Capital Initials, as Donald Tusk did last year in the FT (cf pic).

FT Tusk

So what is energy union then?

In a single sentence, I see energy union as Europe doing more of the same things as we did before only (hopefully) better.

For me this means continuing to apply the EU treaties in general and the energy chapter objectives in particular. We should modify existing framework rules (EU laws etc) where there is a good case to do so.

The fields of energy, environment and internal market all remain shared competences under EU basic law. Based on the principles of proportionality and subsidiarity in Article 5, this means there are natural limits to Union-level actions towards other levels. There is e.g. no EU plan to harmonise mains plug sockets.

To do more of the same only better relies, as one would expect, on the same European institutions, the same rules of procedure and the same or similar framework conditions that, in turn, shape how people and companies obtain, use and conserve various forms of energy.

The energy union work programme that the Commission set out in February comprises 43 initiatives to be undertaken over the next four years or so. Some are big, some small, some will be binding, some not, some may be dropped, others may emerge. Parliament and Council got their hands of the first two bills in July.

The quality of the outcomes as a whole (affordable, clean, reliable energy systems) relies on the quality of each of the component parts, before, during and after the present activities. We need to ensure our objectives are met today as well as in the future. Moreover, the foreseen energy union legislation will for the most part only amend existing rules rather than create new ones.

Lastly, one could see energy union also in communications terms as a slogan! or a #tag or both. This helps unify the many initiatives, including e.g. 2030-framework actions, into a more cohesive policy narrative, in Brussels at least.

Scope

The scope of energy union risks being confusing as the formal work programme excludes much environmental rule-making and most competition matters. However due the significance of these later two policy areas, it helps to see them as at least overlapping with the energy union‘s work programme, for example as regards pollution from large combustion plants and the situation of Gazprom operations in the EU market. The key Commissioners certainly see these areas as relevant to or even a part of energy union based on public statements they have made.

Is energy union transformational?

It should be transformational but it isn’t so far. The global climate crisis and the linked need for our societies to exit fossil fuels over 1-2 generations, starting with coal, ought to make it a radical programme for change. However under its present leadership – not just the two EC principals, but the fractious debates and outcomes in all institutions, it’s far from there today.

More of the same only better. Hopefully.

Existing governance

Berlaymont flags outside

The Commission has released four working papers that list “existing reporting obligations” in energy and related EU policy fields. “Two hundred” such obligations were first cited by VP Šefčovič on 18 May, when he suggested some or all could be merged.

The obligations include both those upon member states to report to the Commission as well as obligations on the Commission to report to other EU institutions.

Access to these tables now presents a chance for interested parties, alongside officials, to consider which of the legal provisions listed may be candidates for “simplification” as the “energy union” work programme and related rule-making moves forward.

The EC’s cover letter stresses ~ and readers should be aware ~ that the tables are only work-in-progress and in themselves say nothing about any particular new policy.

I will only make my own analysis of the tables’ content after the summer break, which for me starts tomorrow. 🙂

-oo0oo–