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19 out of 28 EU nations have voted for a compromise on reforms to the carbon emissions market. The tweak to the Emissions Trading System (ETS) is aimed at cutting greenhouse gas emissions under the Paris accord while maintaining economic competitiveness of energy-intensive industries.

An official from the council’s legal services said Tuesday that 19 ministers had backed the presidency’s final compromise text, representing 71 per cent of the EU population.
EU Commission
That is sufficient to gain approval under the EU’s qualified majority rules, once any text agreed with the parliament comes back for a formal vote. Hungary, Italy and Poland were among the countries that did not support the presidency’s compromise. Poland’s minister said he felt “cheated” by the deal.

Polish Environment Minister Jan Szyszko told reporters that the planned approach to the ETS reform plan was destructive to Polish energy security as it blocked coal. Development Minister Mateusz Morawiecki said that the EU’s emission reduction proposals “spelt danger for industry, and particularly Polish industry” as they threatened to burden high-energy industrial segments, especially steel industry, with additional reduction costs.

The cap-and-trade permit system is the EU’s flagship policy to meet its goal of cutting greenhouse gas emissions from 11,000 energy-intensive industrial plants and power stations by 43 percent by 2030 when compared with levels in 2005.

But the market has suffered from an excess supply of permits since the financial crisis, which depressed prices.

A text of the compromise seen by Reuters calls for measures to strengthen prices by doubling the rate at which the scheme’s Market Stability Reserve (MSR) soaks up excess allowances and by cancelling surplus permits yearly after 2024 that have been three years in the reserve, above a ceiling of 650 million.

The market stability reserve is intended to act as a bank to soak up the surplus allowances that are currently keeping the EU carbon price very low, around Eur5/mt ($5.30/mt).

The deal also offers a cushion for industries worried about being short on allowances if a cap is triggered on overall allocations that slashes free allowances across the board, known as the cross-sectoral correction factor (CSCF).

Under the current ETS trading phase, which runs from 2013 to 2020, the majority of carbon permits are sold through government auctions, with most of the remainder given free to industry.

Tuesday’s deal calls for an additional 2 percent of the permits due to be auctioned to instead be freely doled out to industry if the CSCF is triggered.

EU nations need a common position before beginning talks with the European Parliament and the European Commission to finalise EU legislation on the reforms tabled by the Commission more than a year ago. Any informal agreement reached by presidency and parliament negotiators has to be approved by the EU Council, representing the EU’s 28 national governments, and the full parliament.

Malta is leading the EU Council’s debate on the reforms as it holds the EU’s rotating six-month presidency until the end of June.