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| CARBON MARKET MONITOR: DISTRIBUTING EUAS POST 2020
With European 2030 emission targets decided and the Market Stability Reserve (MSR) to come into action in 2019, there is a growing feeling in the EU ETS that the main regulatory parameters are known well beyond the current trading period.
 A key element in the existing political deals is the more rapid decrease of the emission cap, as the annual reduction factor will increase from 1.74 percent today,to 2.2 percent from 2021 onwards. This, combined with the MSR, means that we can assess the future volumes of EUAs with a relatively high degree of certainty.
Another question is how these volumes will be distributed. In July, the European Commission presented a draft review of the ETS directive, translating the policy signals into concrete measures, and suggesting a precise split between auctioning, free allocation to industry and new funds for innovation and modernisation.
Much of the review discussions will be technical and legal, but given industry’s demand for a high share free allocation, the debate is likely to move up to the levelof politics, to involve both the European Parliament and the member states.
In parallel, and seemingly unaffected by the recent Commission paper, European carbon prices have picked up steadily over the last two months. The reference contract climbed above €8/t, a level last seen in 2012.
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