Start of Backloading of Emission Allowances – Fewer Allowances Auctioned

The amount of emission allowances auctioned under the EU emissions trading scheme (EU ETS) has been reduced by 400 million for 2014. The measure is part of a so-called back-loading scheme that postpones the auctioning of 900 million allowances in total in the period from 2014 to 2016 to 2019 and 2020 to allow demand for allowances to pick up and provide greater incentive to invest in greenhouse gas emission reductions. Auctioning of the reduced volume has begun at the European Energy Exchange (EEX). German auctioning volume now amounts to only 127.1 million instead of 205 million allowances, the Federal Ministry for the Environment informed.

In 2015 the auctioning of another 300 million allowances shall be postponed and a further 200 million in 2016. This shall help to address the surplus of almost 2 billion allowances that had built up and weakened the price of the allowances, thereby lowering the incentive to invest in clean, low-carbon technologies and reduce greenhouse gas emissions (for more information by the Commission, please see here).

As back-loading is only a temporary measure, a sustainable solution to address the imbalance between supply and demand requires structural changes to the EU ETS, the Commission points out.  It proposes to establish a market stability reserve at the beginning of the next trading period in 2021, which shall automatically adjust the supply of allowances to be auctioned. Besides, the Commission wants to reduce the market imbalance by increasing the annual linear reduction factor which determines the EU ETS cap. To achieve the target of a 40% reduction in EU greenhouse gas emissions below 1990 levels by 2030, set out in its 2030 framework for climate and energy policy, the Commission proposes an increase in the linear reduction factor to 2.2% per year from 2021, compared with 1.74% currently (for more information, please see here).

Source: Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety

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