Brussels, 02/07/2015 (Agence Europe) - The planned long-term reform of the emissions quota trading system of the EU (ETS), for the period post-2020, or the fourth trading period of the ETS, is being prepared by the services of the European Commission.
The proposal aims to modify directive 2003/87/EC (known as the “ETS” directive), which establishes the European carbon market, and is expected “by the end of the summer”, according to the Commission. It will set in place the orientations agreed upon at the European Council of October 2014. A draft of the project of which EUROPE has had sight confirms this. It aims to protect high-energy-consuming companies subject to “a genuine risk of carbon leak” which would damage their competitiveness, and ensure that the free allocation of quotas does not lead to “undue profit”.
“For the rules applicable to carbon leaks post-2020, various options will be assessed in the framework of the impact assessment”, Anna-Kaisa Itkonen, spokesperson to the Commissioner for Climate Action, Miguel Arias Canete, recently announced.
This dossier will be a priority of the Luxembourg Presidency of the Council of the EU. “The issue is that for the member states, there is a very clear link between the ETS and the non-ETS sectors, particularly when we talk of bridges between the two. However, the non-ETS proposal will not come until after COP 21. It is better if we are not ripping each other apart when we go to Paris. The countries are going to be unwilling to move forward on ETS if they do not yet know what fate has in store for them in the non-ETS, but both texts should make up a package in the course of next year”, a European diplomat recently predicted.
At the European Council of October 2014, which adopted the integrated action framework for Climate and Energy policies for the period 2020-2030, the heads of state or government stressed that an emissions quota trading system reformed by creating a market stability reserve (which is expected to be up and running in 2019) will remain the principal instrument to achieve the targets at the lowest possible cost. They agreed that the compensation mechanism to support the modernisation efforts of the lower-income countries will be set up out of a reserve of 2% of the quotas allocated and that the compensation fund will be managed by the beneficiary countries (rather than the EIB alone). They also stressed that the allocations of free quotas to high-energy-consuming industries under threat of carbon leaks would continue until 2030, focusing on sectors which are at the greatest risk of loss of competitiveness, by adapting the system to the actual level of production and limiting undue profit (see EUROPE 11184).
Free quotas. Amongst other things, the draft text currently being prepared provides for a substantial change to Article 10 of the directive on the method for allocating the quotas. The Commission suggests that from 2021, the share of quotas to be auctioned by the member states and for the Modernisation Fund will be 57%. The Commission is also planning to replace article 10(a) with text specifying that “the sum of free allocations is necessarily limited” and that “in every year where the sum of free allocations does not reach the maximum level that respects the member states' auctioning share, the remaining allowances up to that level shall be used to prevent or limit reduction of free allocations to respect the member states' auctioning shares in later years. Where, nonetheless, the maximum level is reached, free allocations shall be adjusted accordingly. Any such adjustment shall be done in a uniform manner”.
Carbon leaks. Under this draft proposal, the member states would have to adopt compensatory financial measures for sectors or subsectors exposed to a high risk of carbon leaks as a result of significant indirect costs resulting from the costs of emissions of greenhouse gases passed onto electricity prices, but in full respect of the rules governing state aid.
The 'benchmarks' for the free allocation of quotas (based on the 10% most efficient companies from a climate point of view in any given sector) will be updated to avoid undue profit and reflect the technical progress made in the period 2007-2008 and following for which benchmarks will be established. The values of the benchmarks could be reduced by 1% compared to the value based on the data from 2007-2008. (Aminata Niang)