As part of the 2030 framework for climate and energy policies, the European Commission has presented a legislative proposal to ban CERs or CDM carbon credits from non-EU countries such as India and China.
The Commission has instead proposed to establish a market stability reserve under the EU Emissions Trading System (EU ETS), to operate as of phase 4 starting in 2021. This effectively means that the EU carbon market will only trade in permits or allowances that are controlled and issued by the commission and disregard any credits or emission reductions that are generated from low carbon projects such as wind, solar and hydro projects internationally.
The market stability reserve set out in the new proposal functions by triggering adjustments to annual auction volumes in situations where the total number of allowances in circulation is outside a certain predefined range:
(a) Adding allowances to the reserve by deducting them from future auction volumes with the aim of mitigating market instability due to a large temporary surplus in the EU ETS if the total surplus is higher than 833 million allowances;
(b) Releasing allowances from the reserve and adding them to future auction volumes with the aim of mitigating market instability due to a large temporary deficit in the EU ETS provided the total surplus is below 400 million allowances.