The current surplus of allowances in the EU ETS can pose a threat to the functioning of the ETS. The presence of the surplus and the resulting low price may affect participants in the EU ETS to not take measures to actually reduce emissions. This could in turn lead to a deviation from the most cost-effective way to long-term emission reduction targets.
The large surplus has led to a continued low carbon price in the emissions trading system, which reduces the price incentive for carbon dioxide investments.
Addressing the problem
A first step to addressing the problem in the short term has been taken through so-called backloading. This was done through a decision to postpone auctions of a certain amount of allowances. Auctions of 900 million allowances planned to be realized during 2014-2016 would be postponed to 2019-2020 by an addition to the so-called auctioning regulation.
This measure aimed at rebalancing supply and demand of allowances in the short term to improve the overall function of the third EU ETS phase.
A decision has been made later, which means that the 900 million units are instead taken into the so-called market stability reserve.