Brussels, 31/05/2016 (Agence Europe) - The MEP Ian Duncan (ECR, UK), rapporteur on the proposed reform of the ETS system for the fourth trading period (2021-2030), has called for a more targeted approach to carbon leaks to ensure more effective free allocations, fewer disadvantages for the most efficient high-energy-consuming businesses, less red tape for SMEs and more financial resources for innovation in low-carbon industrial technologies.
These are the outlines of his draft report, which he published in English on Tuesday 31 May on the proposed structural reform of the ETS presented by the European Commission in July 2015 (see EUROPE 11360). This report will be discussed by the committee on the environment of the EP on 21 June. The plenary session vote is scheduled for December. “As our climate change targets increase, free allocation will become scarcer. Accordingly we have to ensure that free allowances are allocated as efficiently as possible, while avoiding the most efficient plants in Europe from having their allowances stripped, as they presently experience”, Duncan explained.
He proposes: - the possibility to increase the annual emissions reduction rate (Linear Reduction Factor of 2.2%) after the first global stock-take on progress made towards the Paris Agreement targets, to be carried out in 2023; - empowering the member states to withdraw allowances connected with national electricity capacity closures, to be fed into the carbon market stability reserves; - allowing the Commission to put a proposal to the Parliament and Council if overlapping EU energy policies are affecting the market balance.
The more focused approach to carbon leakage he calls for (along the lines of France and the UK in particular - see EUROPE 11418) is based on four risk categories - very high, high, medium and low - which correspond respectively to a certain percentage of free allocations. This also aims to ensure that the most efficient plants do not suffer as a result of the Cross Sectorial Correction Factor. When this factor is triggered, 2% of auctioned quota would be transferred across to free allocations.
In order to foster industrial innovation, including carbon storage and capture technology (CSC), the rapporteur proposes injecting 150 million additional quotas into the innovation fund (representing up to €3.75 million) from unallocated quotas following phase III of the ETS, and relaxing the fund's eligibility criteria.
This draft report “contains some very positive elements. Several aspects of the EPP's position have been taken on board, such as the fair balance between auctions and free allocation (57% compared to 43%), the Cross Sectorial Correction Factor, which we hope to avoid; a more dynamic allocation of quotas, a simplification of the rules for SMEs, greater funds for innovation”, Ivo Belet (EPP, Belgium) told EUROPE (see EUROPE 11546). However, he criticised the more targeted allocation of carbon leaks. “Our firm belief is that it is better to go with the Commission's proposal, as the targeted approach will not guarantee that the most efficient businesses will be 100% protected”, he added.
In the view of Bas Eickhout (Greens/EFA, Netherlands), Duncan's draft does no more than marginally to change the European Commission's proposal and still accords too much importance to free quotas to remedy “the fundamental problem with the ETS - the oversupply of quotas and the windfall profits that the polluting industries would continue to reap from a dysfunctional carbon market” (see EUROPE 11512). A reform of this kind “would be totally at odds with the EU's commitment under the Paris Climate Agreement”, he added, with specific reference to the target of 1.5° for the average increase in global temperatures and the EU's objectives for 2050 (reducing its emissions by between 80% and 95%). (Original version in French by Aminata Niang).