After a day of talks and several attempts at compromise, the Council of the EU in Brussels on Tuesday 28 February managed to reach a qualified majority political agreement on reform of the European carbon market (Emissions Trading System, ETS) for 2021-2030 (the fourth carbon quota trading period) (see EUROPE 11734, 11732).
European Environment ministers needed to make four attempts with a number of breaks but the Maltese Presidency’s work finally paid off thanks to a final amendment to its draft agreement, based on a final compromise proposal concocted by the Czech Republic.
This theatrical achievement was immediately challenged by Poland which was sure that a blocking minority existed that had been ignored by the Presidency on a dossier of prime importance for the member states’ economies. Hungary said that one is far from the consensus recommended by the European Summit in its conclusions document of October 2014, and Italy regretted the methods used to give a forceps birth to a text amended at the last minute.
Italy, Latvia, Lithuania, Romania, Bulgaria, Hungary, Poland, Croatia and Cyprus did not support the compromise.
Maltese sustainable development, environment and climate change minister Jose A. Herrera, who chaired the meeting, said that at that stage, there hadn’t been a vote, but there wasn’t a blocking minority either. Nineteen member states representing 71.4% of the population supported the text, explained a representative of the Council’s legal department.
After more than nineteen months of talks and this fourth ministerial debate about reform of the ETS in the long-term, negotiations will now be able to begin with the European Parliament, which took a negotiating position on 15 February that is not so very different. The president of the Council welcomed the agreement in principle as important progress for achieving the EU’s climate objectives for the planet and for future generations.
The trialogue negotiations will be able to begin rapidly and the final agreement will then go to the Council of the EU for a vote, he said in comments to all and sundry, particularly Poland. EU Climate Action Commissioner Miguel Arias Cañete immediately welcomed the agreement as laying the basis for a revised ETS that works, preserves industry’s competitiveness while preserving the most vulnerable sectors from international competition and reducing carbon leakage by allocating more free quotas.
The reform aims to make the EU’s main market instrument more effective with a view to achieving at the lowest cost the climate objectives for 2030 (reducing greenhouse gas emissions by at least 40% on the 1990 level), while protecting the energy-guzzling industries most at risk from carbon leakage and international competition. The reform covers 11,000 plants in industry and energy covered by the ETS which have to cut their emissions by 43% by 2030.
France, Luxembourg, the Netherlands and Sweden wanted any quotas in the market stability reserve (MSR) to be scrapped after five years once the MSR reaches 500 million tonnes of CO2. They had the support of United Kingdom, Germany, Slovenia and Denmark. On the contrary, Cyprus totally opposed this idea of scrapping quotas in the MSR.
The Czech compromise that was agreed upon stipulates that from 2024 onwards, excess quotas (in other words the number in excess of the quotas put out to auction) will be scrapped on an annual basis. This proposal was accepted by the latter four countries ahead of the one initially in the Presidency’s draft compromise, which foresaw a cancellation in one fell swoop of a certain number of quotas.
Otherwise, the Presidency’s initial compromise was amended in the margins. In order to avoid applying an inter-sectoral correction factor (CSCE) that could penalise the best-performing high-energy consuming companies, the solution agreed upon was for 57% of quotas to be put out to auction (compared with 43% of free quotas). But if the CSCE were to be activated, it would be possible to reduce the proportion of quotas put out to auction by up to 2% to ensure there are enough free quotas throughout the period.
In terms of compensation for indirect carbon costs, the agreement stipulated in the end that countries cannot use more than 25% of income generated from the auctions for compensation for these indirect costs, in order to ensure healthy competition and proper functioning of the internal market, in line with a proposal from Portugal. Italy, like Portugal, felt that the initial compromise did not provide any solution to the uneven playing field arising from compensation and wanted full harmonisation through a European fund.
From the start, many delegations (France, Ireland, Latvia, Lithuania, Luxembourg, the Netherlands, Sweden, the Czech Republic, Slovenia and Portugal) were open to flexibility in order to achieve an agreement that was felt to be urgent for implementing the Paris Climate Agreement.
French minister Ségolène Royal, who chaired the COP21 that reached the Paris Climate Agreement, said that on 25 March 2017, the EU would be celebrating the sixtieth anniversary of the Treaty of Rome and the climate would be on the agenda, which revealed the scale of importance of the EU’s responsibility. To date, she said, 132 parties, including 23 EU member states, have ratified the Paris Climate Agreement, but Belgium, the Netherlands, Romania, the Czech Republic and Croatia have not yet done so. Royal invited all nations to join the global coalition for the price of carbon, saying that France had launched €7 billion-worth of sovereign ‘green bonds.’
A number of delegations (Bulgaria, Croatia, Hungary, Poland and Romania) indicated from the start that they would not be joining the Presidency’s initial compromise. Polish minister Jan Szyszko argued that the Paris Climate Agreement does not talk about decarbonisation, but rather of carbon neutrality, and Poland cannot support the EU’s objective of reducing its emissions by at least 40% when the ETS only represents 4% of global emissions. (Original version in French by Aminata Niang)