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Carbon market talks to pick up after Czech move

The European Commission, European Parliament and EU countries are expected to agree a launch date of 1 January 2019 for a new Market Stability Reserve (MSR) for surplus carbon reserves, sources have told Reuters08 May 2015

After weeks of discussions on when the MSR should be introduced, a stalemate was broken during closed-door talks last week when the Czech Republic broke ranks with other Eastern European countries led by Poland, who oppose any reform until 2021, Reuters said.

During the talks, the Latvian presidency of the EU proposed financial incentives for poorer member states, according to documents seen by Reuters. It also proposed the 2019 date, and suggested that unallocated allowances from the EU Emissions Trading System, brought about by factory closures, should be put into the MSR by 2020, Reuters said.

Reuters' sources said it was possible that discussions this week could deliver a final deal, although another round of talks is scheduled for 26 May.

The EU's Emissions Trading System is designed to cut carbon emissions, but the recession has led to a large surplus of carbon allowances, the European Commission said on its website.

"Since 2009 the EU ETS has experienced a growing surplus of allowances and international credits compared to emissions which has significantly weakened the carbon price signal," it said.

As a short-term measure, the Commission is postponing the auctioning of 900 million allowances until 2019-2020 to allow demand to pick up. However, as this is just a temporary measure, the MSR is proposed as a more sustainable solution, the Commission said.

The MSR would be set up with predefined rules to remove the surplus emission allowances, according to the Commission's policy document. When the total number of allowances in circulation passes 833 million, the surplus will be added to the reserve – and allowances will be released when the surplus falls below 400 million allowances.

"The reserve would both address the surplus of emission allowances that has built up and improve the system's resilience to major shocks by adjusting the supply of allowances to be auctioned.  It would operate entirely according to pre-defined rules which would leave no discretion to the Commission or Member States in its implementation," the Commission said.

The chief executive of Olam, one the largest agricultural commodity traders in the world, recently called for carbon pricing to control dioxide emissions.

Sunny Verghese told delegates at the Financial Times Commodities Global Summit that carbon needed to have a cost to users.