The European Parliament’s Industry, Research and Energy Committee on October 13 adopted its legislative opinion on the reform of the EU’s Emissions Trading Scheme.
The report proposes a series of reforms to ensure the next phase of the ETS helps to deliver on the goals of the Paris agreement on climate change ratified last week and the EU’s own 2030 climate change targets.
The opinion secures a stronger Innovation Fund with scaled-up means to leverage private investments in breakthrough industrial technologies. The adopted text calls for a continuation of the free allocation of allowances as an exemption to the general rule, in order to prevent carbon leakage. The 10% best performing installations should receive 100% of their allowances free, to keep a reward for best performers, ALDE Group said in a press release.
“I welcome the clear support shown for this report in the Industry Committee and I now look forward to working closely with colleagues across the Parliament to help deliver an ambitious text ahead of the final plenary vote and subsequent negotiations with EU Governments,” said Swedish MEP Fredrick Federley, rapporteur of the report from the ALDE Group.
“The ETS currently fails to promote low-carbon investments and innovation on the scale needed to achieve the medium and long term climate objectives – we must reform the ETS to change this, whilst working with the business community to reduce the administrative burdens of the scheme. Liberals and Democrats have pushed hard for a stronger innovation fund to harness private investments for breakthrough low-carbon technologies,” he said.
The European Parliament last week ratified the Paris climate agreement.
The EPP Group also hailed the report, noting that it keeps the ambitious emission reduction objectives in the spirit of the Paris Agreement on climate change while offering better protection of European business competitiveness.
EPP Group Shadow Rapporteur, Esther de Lange, an MEP from the Netherlands, welcomed the commitment of the four largest groups and the Rapporteur in particular on reaching an ambitious and realistic agreement on the ETS reform. “The outcome of this vote is a strong signal to the colleagues in the Environment Committee. A large majority of Members in the Industry Committee are saying that the ETS is not only a climate policy, it is an industrial policy as well and as such, crucial for the competitiveness of our businesses and the jobs of our citizens. There is no question that Europe will need to achieve significant reductions in our C02 emissions. We believe this should and can be done with industry rather than against it, avoiding carbon as well as investment leakage,” she said.
The EU Emissions Trading System (ETS) aims to achieve a cost-efficient reduction of greenhouse gas (GHG) emissions through a market for trading emission allowances. The amount of available allowances is fixed in advance, in line with the EU’s GHG reduction targets. Due to weak demand, the price of emission allowances has been too low to make it beneficial for companies to lower their emissions. Therefore, in July 2015, the European Commission presented a legislative proposal to revise the EU ETS for the period after 2020. This is the first step in delivering on the EU’s target to reduce greenhouse gas emissions by at least 40% domestically by 2030 in line with the 2030 climate and energy policy framework and as part of its contribution to the Paris Agreement. The European Parliament is currently deciding its position regarding this reform and is expected to be ready to negotiate with the Council and the Commission by the end of the year.
Meanwhile some groups were critical of the new directive, saying it is not far-reaching enough. According to CAN Europe, the compromises reached between the major political groups have done little to repair the broken scheme or align Europe’s emissions trajectory with the global temperature goals it committed to under the Paris Agreement.
“The industry committee refused to speed up annual emission reductions via the so-called Linear Reduction Factor or to align the starting level of the new carbon budget with actual emissions. The ITRE committee furthermore missed an opportunity to cancel a substantial amount of the surplus pollution permits that would flood the ETS after 2020. All these measures are vital in order to drive a shift away from fossil fuels to more energy efficiency and renewables,” CAN Europe said in a press release.
The committee did agree to cancel 300 million allowances from the Market Stability Reserve (MSR), which temporarily stores surplus carbon permits. But with the MSR set to contain billions of allowances by 2020, the measure is far too small to meaningfully impact the carbon price or make polluting industries pay for the harm they cause to the climate. Nevertheless, it sets a precedent for further negotiations on the ETS reform, as it is the first time that members of the ITRE committee agreed to permanently cancel pollution permits because of the gigantic surplus that has built up.
Commenting on the vote results, Wendel Trio, Director of Climate Action Network (CAN) Europe said: “The industry committee closed its eyes to the problem that the carbon market is failing and needs to be substantially improved well beyond what the Commission has proposed last year. Turning a blind eye to the need to scale up emission cuts is simply careless when the effects of climate change are becoming increasingly dire. The industry committee kicked the can down the road to the environment committee to make the ETS truly fit for purpose and turn it into a strong tool that helps the EU deliver emission cuts in line with the Paris Agreement.”