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THE STATE OF THE EUROPEAN UNION
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policies in the EU. The design of the new gov-
ernance mechanism will have to address this
challenge.
Just as with the implementation of the 2020
package, the consent of Central and Eastern
European Member States was ensured only by
conceding substantial financial compensation
and exemptions to them. From 2021 onwards,
emission certificates in the range of 12 percent
of the total annual EU output will be distributed
to Member States with a lower than average
gross domestic product and can be sold by
them. Member States are largely free to dispose
of the proceeds as they choose. In addition, the
Central and Eastern European Member States
may keep on allocating 40 percent of their al-
lowances in the electricity sector for free.
A consequence of these extensive conces-
sions to the governments of Central and Eastern
Europe is likely to be a regional
fragmentation
of the transformation to a low-carbon energy
system in Europe. Through free allocation, the
resulting costs of the EU emissions trading sys-
tem for coal-based power can be significantly
reduced. Even if there were increasing costs,
they could be compensated directly or indirectly
through additional revenue from auctioning.
These provisions in combination with the in-
creased flexibility in the design of the energy
mix will reduce the EU’s influence on the energy
sector in Central and Eastern to a minimum. As
a result, the EU is on track towards a transfor-
mation of two speeds: one for the east, one for
the west.
Implementing the new framework
In the coming months, the Commission will be
asked to give the political compromises forged
by the European Council a legal form, to submit
legislative proposals, and to address outstand-
ing issues. This will also be a first practical test
for the new Commission of Jean-Claude
Juncker. In the future, the Spanish Climate
Action and Energy Commissioner, Miguel Arias
Cañete, will be in charge of preparing the con-
tent for this process. Maroš Šefčovič, as vice pres-
ident, will be responsible for the coherence of
the Energy Union program.
Three dossiers will be at the centre of the
implementation process on EU level –every sin-
gle one of which has significant potential for
conflict.
Reform of the EU Emissions Trading Scheme
As a key instrument of EU climate policy, the
emissions trading system (ETS) has been in need
of reform for quite some time. Although it still
fulfills its function as a volume control instru-
ment to limit EU-wide greenhouse gas emis-
sions caused by industry and electricity genera-
tion, due to the oversupply of emission
certificates, the system currently doesn’t send
shortage signals to the market, which would
spur investments in low-carbon technologies
and energy efficiency. Still under EU Climate
Action Commissioner Connie Hedegaard, there-
fore, a legislative proposal was presented that
called for the introduction of a Market Stability
Reserve (MSR) from 2021 on.
In response to this proposal, the European
Council agreed on introducing “an instrument
to stabilise the market in line with the
Commission proposal”. The central point of
conflict in the coming months will not be the
question of “if” but rather of “when” the MSR
will be set up. Germany, Britain and France want
it up as early as 2017, while Poland insists on
the Commission proposal for 2021, having the
backing of European Council conclusions. It will