A draft of the EU\u2019s revised Emissions Trading Scheme confirms the European Commission\u2019s intention to tighten the cap placed on CO2 emissions from industry and extend carbon trading to cover shipping emissions as well as road transport and heating fuels.<\/p>\n\n\n\n
The revised ETS will be the centerpiece of a broader package of twelve EU energy and climate laws that the European Commission will table on 14 July.<\/p>\n\n\n\n
The EU\u2019s carbon trading scheme is the main policy underpinning the bloc\u2019s goal of reducing emissions at least 55% by 2030, an objective enshrined in the bloc\u2019s recently adopted European Climate Law.<\/p>\n\n\n\n
\u201cThe ETS is a core instrument to help the EU achieve the increased 2030 target,\u201d says the draft proposal seen by EURACTIV.<\/p>\n\n\n\n
EU climate chief Frans Timmermans says the policy has been a success because it placed a price on carbon emissions from the energy sector and industry. \u201cSo it is a huge incentivising instrument and it is clear that we need to expand it,\u201d he told EURACTIV in a recent interview.<\/p>\n\n\n\n
The cornerstone of the Commission\u2019s proposed reform is a \u201ca one-off downward adjustment\u201d to the overall cap placed on carbon emissions in sectors covered by the scheme.<\/p>\n\n\n\n
The previous ETS was dogged by persistent over-allocation of pollution permits distributed to industry, which depressed carbon prices and kept them below \u20ac10 per ton for many years.<\/p>\n\n\n\n
Subsequent reforms to the ETS have since boosted the carbon price, which shot up past \u20ac50 in recent months, making it more expensive for industries to pollute and giving them an incentive to invest in low-carbon technologies.<\/p>\n\n\n\n
Linear reduction factor<\/p>\n\n\n\n
Brussels now appears determined to avoid repeating the same mistake, with the draft revision saying \u201cthe overall quantity of allowances (\u2018cap\u2019) will decline at an increased annual pace\u201d in line with the EU\u2019s more ambitious 2030 climate goal.<\/p>\n\n\n\n
This \u201cincreased linear reduction factor\u201d is still undecided though, with the exact percentage still showing between square brackets, signaling a likely intensification of political haggling within the European Commission before the EU executive adopts its proposed reform on 14 July.<\/p>\n\n\n\n
\u201cI\u2019m afraid it will be a very last-minute decision,\u201d said Agnese Ruggiero from Carbon Market Watch, an environmental campaign group specialised in carbon pricing policies.<\/p>\n\n\n\n
The linear reduction factor determines how fast the emissions in the ETS decline each year. In the period ranging between 2013 and 2020, it was set at 1.74%.<\/p>\n\n\n\n
\u201cWe want a one-off reduction of 450 million emission allowances and an increase in the linear reduction factor to 3.1% on an annual basis starting from 2023,\u201d Ruggiero said. \u201cIt is a very important part of the reform\u201d and a key demand from environmental groups, she told EURACTIV.<\/p>\n\n\n\n
Extension to maritime transport, building and heating fuels<\/p>\n\n\n\n
In its current form, the scheme puts a price on every ton of CO2 emitted by the electricity sector, intra-EU flights as well as large energy consuming industries, such as steel and chemicals.<\/p>\n\n\n\n
Now, the Commission wants to extend the scheme to cover maritime transport as well as road and building emissions, which would be treated in \u201can additional emissions trading system.\u201d<\/p>\n\n\n\n
\u201cThe scope covering only buildings and road transport has clear benefits in terms of economic efficiency compared to an extension to all fossil fuel combustion,\u201d says a summary of the cost-benefit analysis accompanying the Commission\u2019s proposal.<\/p>\n\n\n\n
\u201cMany homes are still heated with outdated systems that use polluting fossil fuels such as coal and oil,\u201d the Commission writes, justifying the extension of the scheme to buildings.<\/p>\n\n\n\n
Regarding shipping emissions, \u201cthe preferred option would be the integration of the maritime transport sector in the existing EU ETS,\u201d the draft document says.<\/p>\n\n\n\n
According to the draft proposal, \u201cat least 50%\u201d of the revenue generated by the transport and buildings ETS would have to be redistributed to low income households.<\/p>\n\n\n\n
However, EU countries are free to decide how to use the money generated by the scheme, without guarantees that poor households will receive support for both their heating or transport needs.<\/p>\n\n\n\n
\u201cIt doesn\u2019t have to go for renovation for instance,\u201d said Brook Riley, a lobbyist with insulation manufacturer Rockwool. \u201cAs a low-income household, you have the certainty of pricing but only the possibility of support,\u201d he said.<\/p>\n\n\n\n
\u201cIt\u2019s politically very risky if people feel trapped by higher prices. The bottom line is households must get financial and technical support to react to the price signal and renovate,\u201d Riley told EURACTIV.<\/p>\n\n\n\n
The extension of the ETS to road transport and buildings is controversial, with Poland warning about the social impact of a potential rise in heating and transport fuels that is expected to hit the poor disproportionately.<\/p>\n\n\n\n
\u201cThe Commission seems to be making the choice of taxing poorer households,\u201d Adam Guibourg\u00e9-Czetwertynski, Polish undersecretary of state for climate and environment told a recent EURACTIV event.<\/p>\n\n\n\n
Pascal Canfin, a French MEP who chairs the European Parliament\u2019s environment committee also warned the Commission against the move, saying it carries huge political risk and does not bring much in terms of emissions reduction.<\/p>\n\n\n\n
\u201cDo not make the mistake of extending the carbon market to heating and fuel. We experienced it in France, it gave us the Yellow Vests,\u201d Canfin warned.<\/p>\n\n\n\n
Free allocations and carbon border levy<\/p>\n\n\n\n
Elsewhere, the ETS reform proposes to phase out free allocations of carbon credits for industries like steelmaking and the power sector, which are expected to be protected by the EU\u2019s upcoming carbon border levy.<\/p>\n\n\n\n
The border measure, which is also due to be presented on 14 July, is designed to put EU firms on an equal footing with competitors in countries like China, which have weaker carbon pricing policies.<\/p>\n\n\n\n
The new border scheme is aimed at preventing so-called \u201ccarbon leakage\u201d whereby industries move their factories or make new investments abroad in search of lower production costs.<\/p>\n\n\n\n
\u201cThe Carbon Border Adjustment Mechanism (CBAM) should be an alternative to free allocation to address carbon leakage risks,\u201d reads the leaked ETS proposal. Industrial sectors covered by the new measure \u201cshould not receive free allocation,\u201d it adds.<\/p>\n\n\n\n
However, the draft does not say when free allocation should be phased out, leaving the decision to EU member states and the European Parliament, which are co-legislators on the proposed reform.<\/p>\n\n\n\n
Earlier this year, the Parliament voted to keep free CO2 quotas for industries covered by the EU\u2019s upcoming carbon border charge. The amendment was supported by industry associations, including steel group Eurofer, chemicals association CEFIC, cement association Cembureau, and Fertilizers Europe, which asked lawmakers to ensure the EU\u2019s carbon border policy \u201cco-exist with the current system of free allocation.\u201d<\/p>\n\n\n\n
In any event, \u201cfree allocation is made conditional on decarbonisation efforts in order to incentivise the uptake of low-carbon technologies,\u201d says the Commission proposal, with eligible installations requested to provide an energy efficiency audit, \u201cor to demonstrate the implementation of other measures which lead to greenhouse gas emission reductions.\u201d<\/p>\n\n\n\n
Moreover, getting free allowances will be more difficult, with the introduction of a tighter benchmark system to calculate their level.<\/p>\n\n\n\n
No free allocation is foreseen for the separate ETS covering transport and heating fuels.<\/p>\n\n\n\n
This leaves energy-intensive industries like aluminium, chemicals, cement, steelmaking, paper and refining as the only remaining sectors still eligible for free allowances.<\/p>\n\n\n\n
According to Ruggiero, this means the Commission is effectively proposing to tax people\u2019s heating and transport fuels to finance the decarbonisation of polluting industries.<\/p>\n\n\n\n
\u201cIndustrial sectors would continue to get their pollution permits for free while the Commission plans for example to make citizens pay more for heating their homes and driving their cars,\u201d Ruggiero said.<\/p>\n\n\n\n
\u201cThe proposal even foresees that a part of the auctioning revenues generated by other sectors \u2013 and EU citizens \u2013 will be invested in industrial clean innovation. A system that makes everyone pay for the only sector that already receives huge exemptions is not a socially fair system,\u201d she said.<\/p>\n","protected":false},"excerpt":{"rendered":"
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