EU ETS revision trilogues are ongoing, with aspirations to conclude discussions before the end of the Czech Presidency in January 2023. On Friday, reporting showed that common ground had been achieved between EU lawmaking institutions in the EU ETS legislative file. Compromise has been found on market access restrictions and Article 29a.

Non-compliance actors and their behaviour in the carbon market rose to prominence as a policy debate during late 2021 with the rise of EUA prices and Polish government calls for ETS reform. In March 2022, the European Securities and Markets Authority (ESMA) released 

 that “considers that the data analysis has not unearthed any major abnormality or fundamental issue in the functioning of the EU carbon market from a financial supervisory perspective.” Price developments were determined to be driven by market fundamentals rather than speculative behaviour. Ultimately, the policy recommendations from the report centered around improving transparency and oversight – but did not put forward support for limiting positions or access to the market. Many officials and market participants have similarly opposed limitations, arguing that restrictions would hinder liquidity and the role non-compliance actors play as “counterparties to compliance entities seeking to hedge their exposure to the market carbon price (ESMA, 2022).”

In June, the European Parliament solidified its position on the EU ETS revision. Their amendments included a provision that would prohibit non-compliance entities from accessing ETS registry accounts or transferring EUAs. Neither the Council nor the Commission supported this position. On Friday, this amendment was dropped. The reported agreement to abandon market access restrictions is a supportive signal for EUA prices. This is reflected in last Friday’s market behaviour, during which EUAs recovered from a mid-week slump.

Article 29a is a price control mechanism that is intended to counter extreme price volatility. In its current form, the measure is triggered when prices are three times higher than the two-year average price over a period of six months. Once triggered, the Commission then must determine if the price levels correspond to market fundamentals. If not, supply is brought to the market, either from the New Entrants Reserve or from frontloaded auction volumes.

The reported agreement on Article 29a shifts the thresholds under which the mechanism is triggered and the consequences of the triggering. The threshold is lowered from 3 to 2.4 times the two-year average price over a period of six months. Upon being triggered, 75 million EUAs would automatically be released from the MSR over a six-month period.

Article 29a positions

Market access and Article 29a have been agreed to, but that leaves a long way to go on major policy dimensions. The list below is not exhaustive but provides an overview of what remains to be negotiated, even without considering parallel legislative processes (REPowerEU for example). With little more than a month to go, some of the most fiercely debated positions will need to be agreed upon if the goal of 2023 adoption is to be reached. This latest meeting marks the third on EU ETS revisions since trilogues began in July 2022. If not finished in December, the negotiations should be completed in early 2023 under the Swedish Council presidency.

Trilogue policy dimensions

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EU ETS revision trilogues are ongoing, with aspirations to conclude discussions before the end of the Czech Presidency in January 2023.  Compromise appears to have been found on market access restrictions and Article 29a.

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EU ETS market access restrictions off the table

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