ZEP recommendations for the ETS and the MSR

The Zero Emissions Platform (ZEP) submitted its response to the EU call for evidence on the revision of the Emissions Trading System (ETS) and the Market Stability Reserve (MSR). Drawing on the insights of the industrial carbon management community, ZEP’s recommendations support the Commission’s efforts to enhance the efficiency, relevance, and coherence of these critical instruments.

Key recommendations

Smarter and more transparent use of ETS revenue

The use of ETS revenue is a crucial part of addressing climate change. A better allocation mechanism and enhanced transparency are needed to maximise the efficiency of revenue spending.

Competitive and balanced support of industrial decarbonisation

The introduction and continuation of instruments, such as the Innovation Fund and the Industrial Decarbonisation Bank, are needed to enable industries to decarbonise.

To strengthen this, an equilibrium between competitive procedures and geographical balance must be found. Further mechanisms such as ‘grants-as-a-service’ are appreciated.

Ensuring the proper functioning of the MSR

The MSR is a vital instrument to ensure the functioning of the ETS. Small changes are needed to increase its effectiveness, enhance planning security for market participants, and ensure that the carbon price reflects the need for decarbonisation of the economy.

Careful steps to preserve the integrity of carbon removals and carbon capture & utilisation (CCU)

Carbon Dioxide Removals (CDR) should only be included in the ETS under very strict criteria, chief among them being CRCF-certified permanence.

It is crucial that, should such an inclusion happen, this does not lead to any mitigation deterrence. For CCU, where the CO₂ is not stored permanently, a downstream accounting approach which spreads liability and ensures that CO₂ is paid for where it is emitted.

The untapped potential of linkage to other carbon markets

Linkages to other carbon markets have the potential to increase the efficiency of the ETS, as cost-effectiveness and mitigation options are reinforced.

Linkage needs to follow the criteria of market stability and, should they be included, a similar approach to removals and scope.

Other considerations: Waste and CO₂ transport

Municipal Waste Incineration’s inclusion into the ETS needs to be considered in depth before a final decision is made.

Unequal treatment and leakage should be prevented through a more comprehensive policy package on waste treatment. There is also a need to harmonise the transposition of ETS legislation with regard to CO₂ transportation in and across Member States to facilitate market regulation.

ZEP’s full feedback is also available on the European Commission’s public consultation portal.