The European Commission introduced the Market Stability Reserve to reduce the surplus of emissions permits. There’s a number of reasons why there is a large surplus of emissions permits:
- Too many emissions permits were available to industry and plant operators. Unused permits could be carried over from year to year.
- The 2008/2009 economic crisis reduced production more than expected. This reduced emissions too and meant permits were left over.
- Plants could offset part of their emissions through emission reductions in developing countries.
So, the EU decided to auction fewer emissions permits. The ones that were’t auctioned were moved to the market stability reserve. The EU records how many emissions permits are in the market. It also records how many have been handed in for carbon emissions or were cancelled.
The EU decides how many emissions allowances will be auctioned and how many will be put in the reserve. They decide this based on how many emissions permits are available. From 2023, surplus emissions permits will be cancelled from the reserve. If you cancel emissions permits yourself today, then the EU may cancel fewer in the future.
To prevent this, at first we will hold the emission permits in our account. They aren’t available to the market- because we won’t sell them again. But they’ll be counted as available surplus permits, which will lead to the EU cancelling more emissions permits.
We will only delete the emissions permits when the EU stops deleting them. This will happen when no more emissions permits are moved to the reserve. According to current rules, that’s when the surplus of emission permits is below 833 million tonnes.