On Monday 19 December in Brussels, the respective Ministers for the Environment warmly thanked the Slovak presidency of the Council of the EU, for the progress made during its mandate on the project for the long-term reform of the emissions trading system (ETS). Nonetheless, the Presidency was unable to obtain a general approach on this dossier.
Too many questions remain pending, as demonstrated in its progress report but all the delegations considered that its most recent draft compromise, which obtained the support of a majority of delegations, contained a good basis for negotiations and for moving forward.
It will therefore be up to the Maltese Presidency to take over the reins in hope of obtaining a political agreement (general approaches) during the next environment Council at the end of February, following the European Parliament plenary session vote planned for the middle of that month. All the different member states and the European Commission expressed this wish and that there would be no delays in implementing the Paris Climate Agreement. They also said that they did not want to be left behind by the Parliament in this regard (see EUROPE 11690).
At the end of the session he chaired, Lazlo Solymos, stated, “We did everything in our power to obtain a general approach. Unfortunately, this proved impossible due to the lack of political will”. He also recognised that the doubling of the capacity in the market stability reserve and the increase in the linear reduction factor for the allocated quotas every year were among the questions still pending. He added that, “The differences are not so deep but we still have to discuss them. Pressure from Parliament will be considerable”.
Miguel Arias Cañete, the Commissioner for Climate Action, explained “Parliament is expected to make progress at the beginning of next year. The environment committee demonstrated that it was possible to obtain packages for compromise. Parliament can and the Council can too. I am confident that we can find a common ground of understanding so that trilogue negotiations can begin in March”.
The three questions still pending are: strengthening ETS in the short and medium-term; allocating free quotas to preserve competitiveness in high energy consuming sectors of European industry that really are exposed to carbon leakage; financing and managing the modernisation fund, the solidarity mechanism that is supposed to help Central and Eastern European countries modernise their energy systems during the transition to low carbon economies.
Strengthening ETS. The debate demonstrated that strengthening the European carbon market was essential. France, Denmark, Sweden, United Kingdom, Luxembourg, Czech Republic, Spain and the Commission were particularly keen on this in order to help increase the prices of carbon per ton and send out appropriate signals to encourage investment in low carbon level technologies. France and Luxembourg even want an ETS revision clause coinciding with the dialogue facilitator on revising climate contributions upwards, as planned for 2018 as part of the Paris Agreement.
Certain delegations, however, are refusing to double the Market Stability Reserve (MSR) in 2019 as proposed in the Slovak Presidency compromise (Bulgaria, Croatia, Ireland, Latvia, Romania, believe this is premature because the rules establishing this MSR were introduced in 2015; Lithuania would even go against the “Polluter pays” principle and Cyprus wants to know what its potential ramifications will be). Denmark, on the other hand, would like to go further and wants the MSR enhancement to be followed by the cancellation of excess quotas.
There is no agreement on the idea of increasing the annual linear emissions reduction factor up to 2.4% instead 2.2%, as proposed by the European Parliament’s environment committee.
Contrary to those that wanted ETS reform to lead to an increase in the price of carbon per ton, Poland is opposed to any possibility of increasing CO2 prices. It is determined to obtain a change in the legal basis of the ETS so that member states maintain complete freedom in their energy mix choices. It would like to exploit its geo-thermal and hydro-wind turbine potential but this does not mean that it will not, for the time being, remain dependent on coal, explained the Polish minister.
Some countries like Italy and Portugal regretted the absence of concrete proposals to compensate the indirect costs that, according to them, will create distortions to competition and undermine the EU’s climate targets.
Free quotas. Certain delegations (Germany, Austria, Belgium, Italy and Greece) do not accept that some of the quotas in the trading scheme stand at 57% as proposed by the Commission and would like this amount to be set at 52%, if they are going to be able to avoid applying the intersectoral correction factor. The Commission says that it is prepared to accept a reduction in the application of this factor. The binary approach for free quota allocations is not being done unanimously either and some delegations would still prefer the allocation of free quotas to apply to only certain sectors that are really exposed to carbon leakage.
Solidarity mechanisms for member states with low revenues. Points of view still diverge on the best structures of governance. Some countries like Austria, Sweden and Luxembourg want the management of modernisation funds to take into account the countries that do not benefit from this fund, in an effort to avoid any funding for nuclear power or coal. France is making a fair price for coal and accurate targeting of frequent allocations a precondition for any progress on this point. Countries in Eastern Europe want to benefit from funding according to their needs and enjoy greater room for manoeuvre, as proposed by the Slovak Presidency. They are insisting on strict respect for the conclusions of the European Council of October 2014. (Original version in French by Aminata Niang)