EU increases gas emission allowance limit to 700 million

A European Union (EU) will increase from 400 million to 700 million the maximum number of emission allowances for gaseous pollutants in reserve, after an interim agreement has been reached, has been released today.

According to a statement, the EU Council and the European Parliament (EP) reached a provisional agreement on Tuesday which increases the maximum number of emission allowances that can be accumulated in the European reserve from 400 million to 700 million, a mechanism that saves excess allowances to be able to return them to the market when necessary and which, in accordance with current standards, definitely eliminates those that exceed the limit set.

According to the statement, this one-off change to this reserve mechanism “will increase liquidity and predictability of the long-term market while protecting industrial competitiveness”l.

The interim agreement still needs to be confirmed by both institutions before its formal adoption.

The reserve withdraws excess greenhouse gas emission allowances from the European Union's Emission Trading System (ETS), from 400 million to 700 million.

For the Member States and the EP, the largest number of licences will strengthen the long-term stability of the EU carbon market and provide a greater margin of protection against future market fluctuations while ensuring a safeguard against oversupply of allowances.

The co-legislators also agreed to a “gradual reduction of the nullification threshold within the framework of the broader revision of the ETS, planned for 2030, in order to ensure a coherent overall approach”.

The Market Stability Reserve, created in 2019, regulates the functioning of the carbon market, reducing the provision of licenses on the market when there are too many in circulation and injecting licenses when there is a shortage.