Italy and Czech Republic to call for softer EU rules on carbon permits, energy supply

Italy, Czech Republic Push Softer EU Carbon Permit Rules, Energy Supply Reform

Joint Proposals to Address Energy Costs and Carbon Market Reform

ROME, Sept 29 (Reuters) - Italian Prime Minister Giorgia Meloni and her Czech counterpart Andrej Babiš will agree joint proposals to curb energy costs and overhaul the European Union's carbon market, officials from Rome said ahead of a meeting of the leaders in Prague on Tuesday.

Upcoming EU Summit and Reform Package

They aim to present the reform package at an October 15-16 EU summit, the Italian officials said.

Global Supply Disruptions and Political Context

Global supply disruptions due to the conflicts in Ukraine and the Middle East are fuelling voter discontent over rising living costs. Parliamentary elections are ​due next year in Italy, France and Spain among others.

Focus Areas of the Italy-Czech Republic Initiative

Easing EU Rules to Prevent Energy Supply Disruptions

Meloni and Babiš are focusing on easing European Union rules that they say could cause energy supply disruptions while also reforming the EU Emissions Trading System (ETS), a regulation forcing power plants and industries to buy CO2 permits when they pollute.

Suspension of Methane Regulation

As part of the package, Rome and Prague are calling on the EU to temporarily suspend a regulation on methane which, according to the officials, could make it more difficult to rely on alternative gas suppliers from January, potentially increasing energy costs and threatening security of supply.

Market Stability Reserve (MSR) Mechanism

Role of the MSR in the Carbon Market

The two governments want the EU to act through a so-called 'Market Stability Reserve' or MSR to prevent the ETS mechanism from contributing to increased cost pressures on businesses.

The MSR is a system that takes excess CO2 permits out of the carbon market to avoid it being oversupplied and the carbon price crashing - but it can also release spare permits back into the market to cool off price spikes.

Postponement of ETS2 for Transport and Heating Fuels

Other proposals include postponing the 2028 launch of an EU carbon price for transport and heating fuels, known as "ETS2", to prevent further increases in energy bills.

Reporting Credits

(Reporting by Giuseppe Fonte in Rome, Francesca Landini in Milan, Kate Abnet in Brussels; Editing by Kirsten Donovan and Gavin Jones)