Luxembourg, 20/06/2016 (Agence Europe) - The work on the proposed structured reform of the ETS for the 2021-2030 period (phase IV) presented by the European Commission 15 July 2015, has made good progress under the Dutch Presidency of the Council. The 28 EU environment ministers welcomed this progress on Monday 20 June in Luxembourg. They also thanked Ms Sharon Dijksma, the outgoing president, for her efforts and background note containing its assessment of the state of play, which she submitted to them in the shape of the inventories and approach advocated for obtaining the appropriate compromises in this field.
Ministers welcomed the technical progress accomplished and gave their backing to the analysis provided, which they believe is a "good starting point" for reaching an agreement at the Council before the end of the year, under the Slovak Presidency.
All the ministers agreed on making this pillar in European climate policy more robust, more harmonised, clearer, simpler and more transparent. It is expected to help the EU respect its commitments in this field (-40% by 2030 and -80%-95% by 2050) and implement the Paris Agreement.
They are awaiting the Commission's legislative proposals on the contribution of the non-ETS sectors, which have to be presented before the end of July, probably the second or third week of July. The proposed ETS reform also includes a 43% reduction in greenhouse gas emissions in the ETS sectors (industry and energy) and 30% for sectors excluded from the ETS (agriculture, construction, transport, waste, light industry), as well as the trading in 57% of quotas. 43% of these quotas will be allocated according to a binary approach: free allocations for 30% or 100%.
The Presidency noted that some delegations have so far only been able to express a general point of view and that others have reserves for general or Parliamentary scrutiny with regard to the proposal. Nonetheless, progress has been made towards greater understanding of the proposal and establishing new ground for understanding. A variety of alternative approaches were discussed on the basis of the proposals from certain individual delegations.
Points of consensus. At this stage, the Presidency has noted a broad agreement on the following points: the revision of the directive must follow the guidelines of the European Council of October 2014 on the Climate/Energy 2030 framework, the main ETS target and the EU objectives as outlined in the 2030 Climate/Energy framework and the Paris Agreement; the ETS should be harmonised as much as possible, to help reduce emissions and help provide incentives for innovation with a better cost/effectiveness relationship. At the same time, it should also take into account as much as possible, the specific circumstances of the member states, without undermining the conditions for free competition within the EU; measures for tackling carbon leakage should also provide appropriate support levels for sectors exposed to risks of reduced competitiveness on the international scene; the need to apply the cross sectoral correction factor (CSCF) in phase IV should be minimal; the governance and use of financial instruments should be transparent and clear, as well as developed in support of the 2030 Climate/Energy framework objectives. Administrative charges should be kept to a minimum; the possibility of further simplification and reductions in administrative charges should be envisaged, particularly for SMEs, whilst maintaining the environmental integrity of the ETS; the role and involvement of member states in the decision-making process and implementation of legislation should be fully guaranteed. Consequently, the choices of instruments - enabling or delegated acts - should only be decided on a case-by-case basis (Portugal, for example, only wants delegated acts for the most sensitive issues, such as carbon leakage).
The delegations support the linear reduction percentage of 2.2% as from 2021. Certain delegations consider that this percentage should be revised on the basis of the EU contribution to the Paris Agreement target (an average increase in global temperatures that are well below 2°C or even 1.5°C for average temperature rises). Other delegations underline the importance of transparency on the level of this percentage so that ETS forecasts are clearer.
Efforts to make free allocations more dynamic and targeted should not be allowed to create further complications or additional red tape.
Many delegations support the trading/free allocations proposed by the Commission. Others would have preferred a calculation method for increasing the number of free quotas, which they believe, could help reduce the likelihood of having to apply the intersectoral correction factor. The Presidency is proposing to put the subject to the side while other aspects of the proposal clarified.
During the debate, Italy and France appealed for carbon price setting, together with the necessary flexibility to take into account different energy models. Ségolène Royale, the French Minister, explained, "businesses are calling for price indications. France will set the price at €30 per tonne. Fair carbon prices must be looked at".
The United Kingdom and France again called for more targeted quota allocations by way of an approach based on carbon leakage risk, which provides a fair approach to businesses that are making most of the decarbonisation efforts.
Sweden said it was concerned by the fact that the market stability reserve adopted in 2015 for entry into force in 2019, would be used during Phase IV of the ETS.
Poland and central and eastern European countries made a concerted appeal for reducing administrative charges created by the innovation and modernisation fund and for the reformed ETS to help achieve the climate targets, "without making us less competitive".
Belgium emphasised that the five yearly revision of commitments, which is central to the Paris Agreement, means that the EU is prepared to revise its contribution in 2020 (by taking into account the 2018 facilitator dialogue) for the 2025 and 2030 periods.
The European Commissioner for Climate Action, Miguel Arias Cañete, warned against new questions being raised with regard to the "benchmarks" for free allocations and the inter-sectoral correction factor whose impact should not be underestimated. Given his concerns about the difficulties of measuring carbon leakage, the Commissioner called for sufficient time to be given to the Commission for establishing whether the risk factors would help make the best choices. He provided assurances that "The Commission will attempt to strike the right balance and take into account administrative charges". (Original version in French by Aminata Niang)