At a meeting of the committee on industry and energy (ITRE) of the European Parliament, in Brussels on Thursday 13 October, the four largest political groups (EPP, S&D, ECR and ALDE) agreed to make the post-2020 structural reform of the emissions quotas trading system (ETS) more protective of industries at a risk of carbon drain, and more favourable to supporting innovation in low-carbon technologies (see EUROPE 11644).
In a vote at the ITRE committee, the consensus emerged on a compromise to this effect, to the great satisfaction of Fredrick Federley (ALDE, Sweden), rapporteur for the opinion on this dossier, on which the committee on the environment is taking the lead role (rapporteur Ian Duncan, ECR, UK). This compromise is supported by 45 votes (and 13 against).
The MEPs said 'yes' to the annual reduction factor for the emissions quotas over the period 2021-2030 (linear reduction factor) proposed by the Commission. However, they are calling for changes to be made to the proportion of quotas to be auctioned and the proportion to be allocated free of charge: they want 52% of the quotas to be auctioned and 48% to come under the free allocation (whereas the Commission proposed 57% to be auctioned and 43% to be allocated free of charge to the highly carbon-intensive industries using a binary approach: 100% free quotas to the sectors deemed exposed to carbon drain and 30% for all others).
The MEPs voted to ensure that more free quotas are allocated to the heavy industries to fight the risk of carbon drain and avoid the correction factor. The most efficient 10% of facilities will receive 100% of their quota free of charge.
The compromise provides for the innovation fund to be bolstered by increasing its resources, which will help to attract private investment in advanced low-carbon industrial technologies and this, according to the rapporteur, is a major breakthrough.
"The ETS currently fails to promote low-carbon investments and innovation on the scale needed to achieve the medium and long-term climate objectives. We must reform the ETS to change this, whilst working with the business community to reduce the administrative burdens of the schemes", Federley said.
The MEPs also took position in favour of a more European approach to compensation for the indirect costs to the energy sector resulting from the ETS and in favour of increasing the ceiling for exemptions from the scheme for small emitters (50,000 tonnes of CO² a year instead of 15,000 tonnes).
The measures voted through to reinforce the Commission's proposal include cancelling 300 million quotas in the market stability reserve and increasing the volumes put out to auction, to be earmarked for climate actions, to 80%.
Esther de Lange, rapporteur for the opinion of the EPP, a group particularly attached to the competitiveness of European industry, hailed it as an ambitious and realistic agreement. She said that the vote sends out the signal that the "ETS is not only a climate policy, it is an industrial policy as well".
Subsidy for polluters? The NGOs, which have expressed disappointment, take the view that the MEPs have lost sight of the Paris Climate Agreement. Carbon Market Watch described the move as a pollution permit to subsidise the heavy industries. Increasing the resources of the modernisation fund is highly praiseworthy, but these resources will be 10 times lower than the pollution subsidies, the NGO argues.
"The over-generous handout of free allowances has made polluting a profitable business. Instead of further subsidising pollution, we should be giving much more support for low-carbon innovations", commented Agnès Brandt. The NGO however welcomes the fact that some of the quotas in the market stability reserve have been cancelled and that the derogation allowing low-income member states to allocate quota to the energy suppliers free of charge has been removed.
WWF has had similar thoughts. "This is exactly the wrong signal to innovators and investors in the EU's green economy", said Imke Lübbeke. The NGOs are counting on the committee on the environment (ENVI) to set the bar higher and make the ETS into an effective instrument in the fight against climate change when it takes position on 8 December. (Original version in French by Aminata Niang)