Brussels, 15/07/2015 (Agence Europe) - A more efficient, fairer, more predictable emissions trading scheme (ETS) after 2020 and one that works better and avoids windfall profits - that is what the European Commission proposed on Wednesday 15 July.
This keenly awaited proposal on the long-term reform of the carbon market marks out the ETS as the EU's flagship instrument for tackling climate change for the next decade. It builds on the experience gained over the ten years that the European carbon market has been in existence and will turn into reality the guidelines formulated by the European Council of October 2014, which agreed the integrated framework for action of the EU climate and energy policies for the period from 2021 to 2030 (see EUROPE 11349).
The proposed revision of Directive 2003/87/EC, the so-called ETS Directive, is the first step in enshrining in law the reduction of greenhouse gas emissions by at least 40% domestically by 2030. It calls on member states to use some of their ETS revenue to finance climate action in non-EU countries, including initiatives to adapt to the impacts of climate change. The proposal is balanced as it takes account of the various interests, fair as it supports the economic transition to low carbon emissions and addresses the investment needs of the member states with lower GDPs, and coherent as it is in line with the European Council's strategic guidelines, the Commission says.
The Commission proposes to: - speed up the rate of reduction of greenhouse gas emissions so as to achieve the target of a reduction in emissions of at least 40% by 2030; - restrict the total number of emissions allowances to be allocated annually; - focus the allocation of free allowances on energy-intensive companies in some 50 sectors exposed to a real risk of carbon leakage and loss of competitiveness while taking account of direct and indirect costs resulting from passing on the costs of greenhouse gas emissions to electricity prices; - ensure solidarity between the wealthiest EU member states and those less well off by financially assisting the latter to modernise their energy systems; - encouraging financing of low-carbon innovation and modernisation of the energy sector.
“Since the ETS was set up, emissions have fallen by more than 17%. The carbon market has become the biggest in the world and has inspired other countries and regions, such as China, California and South Korea. Every year, the reformed carbon market will further cut emissions by an amount equal to what the United Kingdom produces annually. Looking beyond Europe, we are sending out two clear messages. To our global partners, we say that the EU is respecting its international commitments and doing what it has to do. To investors, companies and industry, I say that there has to be investment in clean energy because it is here to stay and will continue to grow”, Climate Action and Energy Commissioner Miguel Arias Canete told the press (our translation).
Commission Vice-President with responsibility for Energy Union Maros Sefcovic said the proposal addresses the expectations of industry in terms of investment and innovation conditions while correcting the weaknesses of the system. “We have to deal with a drop in the price of carbon. We need a carbon market that works better. ETS revision demonstrates our commitment to decarbonisation of the economy and the Paris climate conference”, he said (our translation). He announced that, following on from the diplomatic efforts by Canete, he himself would very shortly travel to South Africa, Congo and Senegal for discussions about COP21.
The proposal makes provision for an annual reduction in the overall quantity of allowances of 2.2% (48 million tonnes per year), a swifter basis for emissions reduction.
The legislation will state exactly how many allowances are to be auctioned. Currently (and until 2020), the figure is 57% and that will be maintained. However, for the following ten years, the Commission proposes that the share of auction sales be adopted quickly, remembering that the fund set up to help the ten member states with the lowest financial capacity depends on the auctioning of additional credits.
Free credits will continue to be restricted to industry but, since the cap will lower, there will be a limit on the number of free allowances. To better target the system, three criteria will determine free allocation: production data, the benchmark level and the risk of carbon leakage. Market opening and production will determine which industries are involved, as is the case currently, but, in order to be able to receive 100% of the benchmark level of free allowances, the industry will have to be above the threshold. Those which do not feature on the list of sectors exposed to the risk of carbon leakage will receive 30% of the benchmark level.
At present, 177 sectors feature on the high-risk list. However, over 100 sectors could be removed from the list because their emissions levels are low. The list of exposed sectors will be drafted in 2019 and will remain unaltered for ten years. With the new list, there will be fewer industries but 100% of industrial emissions, including those from the steel-making, cement, lime, metallurgy and pesticides sectors, will be covered.
For the benchmark, performance criteria by product will be maintained (but, for the moment, based on 2008 data). The benchmark for some sectors is not known, though on the basis of the data available, there exists an improvement gain. The minimum contribution, no matter the progress made, will be 0.5%. The Commission wants to size up the situation to see if these figures hold up to adjust the production level, if necessary. If a sector experiences an increase in efficiency level, the benchmark will be reduced. And those making swifter progress will receive an additional allowance.
Production data, presently based on the 2005-2008 period, will be updated. The Commission proposes that data be gathered over the period from 2013 to 2017 and that the information be updated every five years taking account of production falls and increases.
For energy-intensive sectors (such as aluminium, electric furnaces, non-ferrous metals) that face strong international competition, a system of financial compensation, in line with state aid rules, will be encouraged. The revenue from the ETS will be used to finance this compensation system.
An innovation fund will be set up to support low-carbon technologies. The current innovation fund, NER 300, put in place to support the demonstration of technologies (renewable energy and carbon capture and storage, for instance) will see its budget increase by 50%, financed by 450 million allowances “which will represent up to €11 billion once sold”, stated Canete.
A modernisation fund financed by 310 million allowances will help the ten least well-off member states modernise their energy infrastructures. The distribution key has been decided and will be enshrined in law. Governance will be through an investment board and a management committee. Beneficiary member states will be able to propose projects. The EIB will be involved in the selection of projects and the Commission will also have a role. (Aminata Niang)