IETA urges EU Members States that are introducing coal phase-out policies to cancel EU ETS allowances to protect the bloc’s carbon market from a supply-demand imbalance.
A large-scale shutdown of coal-fired generation, happening simultaneously in several EU countries, would significantly affect the functioning of the EU’s carbon market by cutting demand for EU allowances (EUAs). So far, national coal phase-outs are planned in 12 Member States.
The review of the EU ETS Directive for Phase IV (2021-2030) introduced the option for Member States to voluntarily cancel emission allowances corresponding to national measures that lead to closure of electricity generation capacity in their territory. Further guidance on this provision is expected to be provided by the European Commission in the review of the Auctioning Regulation. IETA encourages the European Commission to clarify rules soon on the voluntary cancellation of allowances.
IETA has today published a position paper entitled “Ensuring the EU’s carbon market resilience to national coal phase-out policies” that outlines recommendations on how to tackle the risk that market demand could collapse, resulting in oversupply.
“Currently the MSR can only partially mitigate the impact of numerous coal phase-outs happening simultaneously. We believe that cancellation of allowances by Member States is the right solution to ensure the EU’s carbon market’s resilience to national coal exits.” said Julia Michalak, EU Policy Director at IETA.
“There are still many unanswered questions with regard to the cancellation provision, including the calculation for the number of allowances to be cancelled, advance notification of cancellations, and a template for Member States to inform the Commission of their intention to cancel EUAs. All these relevant details should be clarified swiftly.”