Introduced in 2015 by the Council of the European Union (EU) and the European Parliament and put into effect in 2019, the Market Stability Reserve (MSR) was introduced as a central tool to regulate the flaws of the cap-and-trade Emission Trading System (ETS) of the EU. The EU set the goal to reach the climate targets from the Kyoto protocol decided upon in 1997 as well as the Paris agreement adopted in 2015 regarding the reduction of their greenhouse gas emissions (GHGs). Purpose was not only to lower emissions but to achieve this in the most cost-effective and coordinated way. As the largest emission trading system in the world, the EU ETS covers 30 countries and around 10,000 facilities. In total, 40% of the emissions of these countries are covered by the ETS. Recent efforts of the EU’s Green Deal intend to increase the environmental ambitions of the EU even more and reform the MSR along its “Fit for 55 program” . The MSR plays a significant role in this reform and has been used as the central regulating tool in order to improve structural supply-demand imbalances since its implementation.
The goal of this thesis is to outline in what regard the Market Stability Reserve is helpful within the EU ETS to get closer to the EU’s most recent environmental goals and what changes could be made to make it more efficient. In the second chapter, the EU’s sustainability intentions as well as the EU ETS in general will be outlined. The third chapter, will describe the function and mechanisms of the MSR composition in detail as well as what the intentions behind its implementation and changes were as it has considerably changed its structure since its creation . Chapter 3 will also describe and illustrate the market mechanisms of the MSR graphically from a micro economic aspect. Chapter 4 will present four different phenomena of the ETS and highlight how they impact and influence the MSR and how conversely the MSR influences them along with a specific example. The 5th chapter will discuss proposed changes that could help it become more efficient as the system is constantly changing and new reforms are already expected. Chapter 6 will look at future possibilities of the ETS complementing or replacing the MSR. In chapter 7, the core findings of this paper are discussed before concluding the most relevant findings in chapter 8.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- The MSR in the bigger picture
- The Sustainability Goals of the EU
- European Union Emission Trading System
- Market Stability Reserve
- Roots of the MSR
- Principles of the MSR
- MSR changes in recent years
- Future proposed reform
- Technical background of the MSR
- Design phenomena of the ETS and MSR
- Waterbed effect
- Effects of the Policy Mix
- Temporary Aspect
- The Green Paradox
- German Coal phase out
- Proposed changes and the future of the MSR
- Price floor
- Price Stability Reserve
- Future Perspective of the MSR and ETS
- Future of the Surplus
- Future of the EUA price
- Discussion
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This bachelor's thesis analyzes the Market Stability Reserve (MSR) within the European Union Emission Trading System (EU ETS). It aims to examine the MSR's role in ensuring the stability of the carbon market, its impact on emission reduction goals, and its potential for future development. The thesis explores the historical background, operational principles, and design phenomena of the MSR, focusing on its contribution to achieving the EU's sustainability targets.
- Market Stability Reserve (MSR) and its impact on the EU ETS
- The role of the MSR in achieving the EU's sustainability goals
- Design phenomena and potential consequences of the MSR
- Proposed changes and future development of the MSR
- Future perspective of the MSR and its influence on the EU ETS
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: This chapter provides a brief overview of the European Union Emission Trading System (EU ETS) and its key components, including the Market Stability Reserve (MSR). It highlights the significance of the EU ETS in reducing greenhouse gas emissions and achieving the EU's climate goals.
- The MSR in the bigger picture: This chapter explores the broader context of the MSR within the EU's sustainability framework. It examines the EU's sustainability goals, including emission reduction targets, and discusses how the EU ETS, with the MSR, contributes to these goals. It also provides a detailed overview of the EU ETS, outlining its mechanisms and operation.
- Market Stability Reserve: This chapter delves into the core aspects of the MSR. It traces the historical roots of the MSR, outlines its fundamental principles, and discusses its evolution over time. The chapter also analyzes recent changes to the MSR and explores proposed reforms for the future. It concludes with a technical explanation of the MSR's operational mechanisms.
- Design phenomena of the ETS and MSR: This chapter investigates the effects and unintended consequences associated with the design of the EU ETS and the MSR. It examines phenomena such as the waterbed effect, the impact of policy mix, and the temporary aspect of the MSR. It also explores the Green Paradox and its implications for the effectiveness of carbon pricing policies.
- Proposed changes and the future of the MSR: This chapter focuses on proposed changes to the MSR and its future direction. It analyzes the potential impact of a price floor on the EU ETS and discusses the concept of a Price Stability Reserve (PSR) as an alternative to the MSR. The chapter explores the rationale behind these proposed changes and their implications for the carbon market.
- Future Perspective of the MSR and ETS: This chapter offers a perspective on the future of the MSR and the EU ETS. It examines the potential future of the carbon market surplus and discusses the potential for the price of EU Allowances (EUAs) to rise in the future. The chapter explores the key factors that will influence the trajectory of the MSR and the EU ETS in the years to come.
Schlüsselwörter (Keywords)
The main keywords and focus topics of this work include the European Union Emission Trading System (EU ETS), the Market Stability Reserve (MSR), carbon market stability, emission reduction goals, sustainability targets, carbon pricing, price floor, Price Stability Reserve (PSR), carbon leakage, Green Paradox, and the future of the EU ETS.
- Quote paper
- Stephan Kruse (Author), 2023, The European Emission Trading System Market Stability Reserve, Munich, GRIN Verlag, https://www.grin.com/document/1357250
