In line with Paris Agreement, EU to cut carbon emission allowances

EPA/DANIEL REINHARDT

A smoking chimney in Wismar, Germany, October 31, 2015. Members of the European Parliament on February 15, 2017, backed plans to boost greenhouse-gas emission curbs through the EU carbon market (EU ETS).

Plans to strengthen the system and reduce the glut of emission allowances could have been stricter but “on the right track”


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Striving to bring EU climate police in line with the Paris agreement, Members of the European Parliament on February 15 backed plans to boost greenhouse-gas emission curbs through the EU carbon market (EU ETS). The draft measures were approved by 379 votes to 263, with 57 abstentions.

The measures were met with moderate optimism as some MEPs argue that plans to strengthen the system and reduce the glut of emission allowances should have been stricter.

MEPs supported the European Commission proposal to reduce the number of “carbon credits” (emission allowances) by 2.2% each year, and want to double the capacity of the 2019 market stability reserve (MSR) to absorb the excess of allowances on the market.

But with US President Donald Trump question the Paris Climate Agreement, the United States appears to be going in the opposite direction from Europe’s carbon curbing policies.

“It really depends how serious Trump is going to be with his policy,” Justin Urquhart Stewart, director at Seven Investment Management in London, told New Europe. “If he is going to fundamentally change direction and it looks as though he’s going to change direction with this, then you suddenly are going to get more focused on more carbon-producing energy. Then frankly the whole structure no matter what Europe is going to be doing will amount to very little. It sounds politically sound but practically useless,” he added.

Urquhart Stewart there is very little the EU can do to get the US to respect carbon-reducing policies. “All they can do is pass their own requirements and standards but what pressure they can put on the United States is extremely limited indeed. They can hold up their own standards as a matter of pride but in terms of practical application to put pressure on the United States is going to very limited indeed,” he said.

Nevertheless, Europe is trying to put its own house in order with British MEP and rapporteur Ian Duncan (ECR), saying the vote on February 15 marks a major step forward towards meeting the EU’s ambitious climate change targets. “Parliament has voted through ambitious measures to fulfill our Paris Agreement obligations, and we have sent a strong signal to the European Council that we are serious about the fight to stop global warming,” Duncan said.

MEPs approved the Commission proposal to increase the so-called “linear reduction factor” – the yearly reduction of credits in order to deliver on the carbon curbs – by 2.2% from 2021, as against 1.74% in the existing legislation, the European Parliament said in a press release. This factor should be kept under review with a view to increasing it to 2.4% by 2024 at the earliest, MEPs said.

MEPs also want to double the MSR’s capacity to mop up the excess of credits on the market. When triggered, it would absorb up to 24% of the excess of credits in each auctioning year, for the first four years. They agreed that 800 million allowances should be removed from the MSR as of January 1, 2021.

Two funds will be set up and financed by auctioning ETS allowances. A modernisation fund will help to upgrade energy systems in lower-income member states, and an innovation fund will provide financial support for renewable energy, carbon capture and storage and low-carbon innovation projects.

MEPs also propose a “just transition fund”, pooling auction revenues to promote skill formation and reallocation of labour affected by the transition of jobs in a decarbonising economy.

The aviation sector should receive 10% fewer allowances than its 2014-2016 average, in order to bring its efforts in line with other sectors, say MEPs. Revenues from auctioning allowances in the aviation sector would be used for climate action in the EU and third countries.

MEPs say that, in the absence of a comparable system operating under the International Maritime Organisation (IMO), CO2 emissions in EU ports and during voyages to and from them should be accounted for. They propose setting up a “maritime climate fund” to compensate for maritime emissions, improve energy efficiency, facilitate investment in innovative technologies and reduce CO2 emissions from the sector.

Regarding next steps, MEPs will now enter into negotiations with the Maltese Presidency of the Council in order to reach an agreement on the final shape of the legislation, which will then come back to Parliament.

The ALDE Group said it considers the Parliament’s position an improvement compared to the original Commission proposal. However, the Parliament’s proposals will not do enough to bring all industrial sectors on a realistic pathway towards a zero carbon economy, consistent with the Paris agreement.

ALDE shadow rapporteur and Environment Committee coordinator Gerben-Jan Gerbrandy said the carbon market reforms voted on February 15 are politically the best possible, but do not meet the required ambition level of the Paris climate agreement. “We would have liked to see a more stringent carbon market, with less state aid and fewer exemptions. But on balance this package will move us forward. Now EU environment ministers, meeting in two weeks, must swiftly agree on a constructive negotiating position,” he said.

“Given the unambitious reforms set out earlier by EU leaders, we’ve taken some steps forward. But if these measures don’t do the job, we must stand ready for further reforms in the mid-term review. The carbon market must encourage low carbon innovation in order to reach our long-term climate targets and for European industry to maintain a competitive edge in the green transition,” the MEP added.

Meanwhile, the European Zero Emission Technology and Innovation Platform (ZEP) said on February 15 that the vote is a step towards a more robust EU ETS, with a carbon price that can drive low-carbon innovation. It sends a signal that Europe is serious about meeting its long-term climate goals.

For its part, the Confederation of European Paper Industries (CEPI) said ETS is on the right track but pitfalls remain. “The ETS has moved a step further on its pro-investment track. Although pitfalls still remain at Council level we are confident that the current text can be improved on,” CEPI Energy and Climate Change Director Nicola Rega said. CEPI said the industry commends several key aspects of the Parliament’s decision: Reemphasising the need for all sectors to contribute to reducing carbon emissions; encouragement of early movers investing in low-carbon technologies; maintaining flexibility in setting the auction share; a first step in finding solutions to help member states with compensation for indirect carbon costs; and the development of a wider-ranging fund for innovation supporting industry transition towards a low-carbon economy.

“Unfortunately, the macro-agreement at the core of the decision by the Parliament still maintains traces of discrimination between sectors, ultimately rewarding those investing the least in carbon emission reductions. But we are confident that this environmentally and legally questionable element will be removed as the next stage of the negotiations. This would guarantee that fairness remains a core component of the ETS,” CEPI said.

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