Frontloading ETS1 revenues is not new and Japan is already doing it. Rather than tweaking the MSR, leading to more emissions, a corridor would help contain price and make frontloading relevant.

Learn more about this proposal go read our latest paper on that matter: institutdelors.eu/en/publicati...

If you replicate that on the ETS1 market you can make a case where you can frontload €200 bn from 2028-2034 making a real difference to finance investment in decarbonization. Ultimately, you favor convergence of the two systems as the EC wanted to. @alicemhancock.bsky.social, @ziaweise.bsky.social

Rather than a buffed MSR, the EC should look into a transitional corridor on ETS2. A ceiling to avoid with certainty the price going past a certain price and a floor to have a minimum level of guaranteed revenues to reimburse the frontloading. This could be transitional (until lets say 2032).

In addition the MSR proposal does not adress one issue: what happens if there were to be multiple price spike (whatever the reason) a year.EC said you could activate the mechanism twice a year. Even if the amount of allowances released is relevant, you cannot rule out the occurence of multiple spike

Finally, the proposal on the MSR contradicts our latest finding. MS do not want an additional mechanism that could EVENTUALLY contain price volatility, they want CERTAINTY on that matter, hence why they forced their way and postponed the EC's hand regarding the postponement.

In addition from a legal point of view, how do you create such a facility w/o reopening the directive? This part remains blurry as you use the revenues to reimburse the loan, it can't be categorized as a non essential part of a delegated act right? @l-guillot.bsky.social, @fredsimoneu.bsky.social

With €6bn available at EU level you can not do that as the frontloading money is shared among 27MS (or at least those who are willing to voluntarly take part in the mecanism). If you want to be serious about frontloading, you have to talk in hundreds of Bn € : institutdelors.eu/en/publicati...

Postponing the ETS2 by a year leads to a lack of revenues (lets say €30bn) in addition to increasing the price pressure on ETS2 starting 2028. To avoid that, what you want to do is MASSIVELY invest in rapid decarbonization measures in big emitters countries : Germany, France, Poland, Italy and Spain

Read our papers on that matter and check out @andreaseisl.bsky.social post on how to use carbon revenues smartly based on a comparative analysis of French, German and Austrian experiences.
9/9

Decided unanimously, this could raise €200 billion from 2028-2034 to fund decarbonization investments like heat pumps and electric vehicles and could be discussed in the upcoming months.
8/9

The mechanism would cover both carbon markets, with a price floor ensuring minimum revenue to reimburse the borrowing and a ceiling to limit price surges.
7/9

To answer these issues we propose a Japan-inspired mechanism: a common loan repaid from future carbon market revenues from ETS2 but also ETS1 :
6/9

States want to contain ETS2 price volatility and strengthen predictability, especially with a reliable mechanism to manage price spikes. Carbon revenues are seen as insufficient: the Social Climate Fund is too limited, and funding for rapid decarbonization is lacking, especially in Eastern MS.
5/9

Countries with existing carbon pricing generally support ETS2 (except France). Opposition is mainly from Eastern and Southern Europe. In France, government instability delayed political decisions. But the key hurdle is the coincidence of ETS2’s start (2027) with the presidential election.
4/9

So far, 17 states have transposed ETS2, 7 partially, and 3, including France, have not. The map of member states’ positions is more complex.
3/9

ETS2 is the new carbon market applying the polluter-pays principle to road transport, buildings, construction, and small industry sectors. Fossil fuel use in these sectors will be priced, increasing the bills for consumers expecting to drive consumption behaviour.
2/9

Indeed, as it stands (see the sucessful CO2 standards for cars push for instance), this might carry on for a while.

Partly due to the fact that many factors directly impacting price formation have changed since then : CO2 standards will be revised, start date being 2028 puts more pressure on short terms decarbonization act° in big MS (not happening atm) and 30% allowances frontloading loses part of its usefulness