On 8 April 2018, Directive (EU) 2018/410 of the European Parliament and of the Council introducing changes to the greenhouse gas emission allowance trading system came into force.
The Directive establishes, inter alia, two financial mechanisms:
- Modernisation Fund - for the modernisation of energy systems in low income Member States. It is intended to be financed by proceeds from the auction of allowances in the years 2012 to 2030. The Fund is to be used primarily to support the development of energy efficiency and investments in renewable energy sources.
- Innovation Fund - to provide financial support for RES development, carbon capture and storage and innovative low-emission projects. It is to be supplied with funds from allowances, which otherwise would be allocated free of charge or sold through auctions.
In addition, the framework for Phase IV of the EU ETS as well as new rules for the Market Stabilisation Mechanism (MSM) have been established. Pursuant to them, since the beginning of 2019, the reduction rate of allowances in circulation has increased from 12% to 24%. Allowances are gradually transferred from the auctioning system to the market stability reserve. Starting from 2024, the rate of 12% will be restored. In Phase IV of the EU ETS, which will start at the beginning of 2021 and last until 2030, the linear reduction factor will also be increased from 1.74% to 2.2%. Both of these elements have an impact on the reduction of supply on the EU ETS market, and thus on the increase in prices of CO2 emission rights observed in 2018. At the peak of the increases, quotations of CO2 emission allowances increased more than three times as compared to the beginning of the year. The increased volatility on the CO2 emission allowances market also had a significant impact on the increased volatility on energy markets throughout Europe, also in Poland.