As the European Parliament’s rapporteur for the revision of the EU Emissions Trading System (ETS), the MEP Peter Liese (EPP, Germany), is among the key players in the legislative process of the ‘Fit for 55’ package aimed at reducing the EU’s net greenhouse gas (GHG) emissions by at least 55% by 2030. In an interview with EUROPE, he discussed some of the main proposals in his draft report presented on 14 January (see EUROPE 12867/3). His objective: to reform the ETS to make carbon pricing more targeted in order to decarbonise the European economy while promoting innovation. (Interview by Damien Genicot)
Agence Europe - One of your proposals is to introduce a bonus-malus system for the companies covered by the ETS. Could you explain how it would work and why you made that choice?
Peter Liese - The bonus-malus system is a completely new element to really foster innovation. What we want is not a carbon price, but decarbonisation. That’s why the carbon price should be more targeted. It should hit those that do not innovate, and it should not hit those that are on the right track.
Therefore, I am proposing a bonus for those companies that are better than a certain benchmark in terms of emissions in their sector, namely the average of the 10% most efficient installations in a sector or subsector. They would get additional free allowances, which they could sell to other companies, to reward them and incentivize innovation.
The malus on the other side would hit the companies which pollute more than the benchmark and do not have a plan for climate neutrality.
Some companies just want to get free allowances, continue their business and not innovate. Someday of course they are somehow no longer competitive, and they just close and send people home. That’s definitely not what we want. We want to promote innovation and decarbonisation.
That’s why I am supporting this malus which means that when you do not have a plan for climate neutrality or you do not live up to the plan, this would be checked every 5 years, then you get 25% less free allowances.
Why 25%?
It is linked to the European Commission’s initial proposal. It foresees a reduction of 25% for those companies that do not implement their energy audit system. After talking to my colleagues, I think that the energy audit system is not really the game changer, because you can have a good energy audit, but no idea how to be climate neutral. So I changed the rule, but I kept the percentage proposed by the Commission.
If the best performers receive more free allowances through your bonus system, isn't there a risk that there will be too many allowances on the market?
Not if you link it to the malus. I assume that there will be more companies having no convincing climate neutrality plan than companies that are better than the benchmark. If we have too many best performers, which I hope, we can consider adaptation. But I think we are not there yet.
You want to include municipal waste incineration in the ETS from 2028. Could this sector not be included in the ETS earlier?
The date is a compromise. The waste incineration sector does not want to be included at all because they think they are doing something good for the waste management. However, it is not possible to keep it out because they are producing CO2.
The problem with an earlier inclusion than 2028 is that we are not yet in a situation where waste incineration competes solely with recycling. Unfortunately, we have a lot of landfills, especially in Central and Eastern Europe, and landfills are a much worse option, because they create methane. Moreover, we still do not have a proper management of waste exports.
These two things need to be fixed and it will be done in the methane strategy and the waste exports regulation, but we need some time for the legislation and then the implementation of the legislation.
Regarding the application of the ETS to the maritime sector, you want to bring the date forward by one year, from 2026 to 2025. Why wait until 2025? Is it a compromise again?
Yes, it is. My colleagues in the Transport Committee (Editor’s note: TRAN Committee) are already angry with advancing the date at all. Others want to see it go faster. As a rapporteur, I have taken into account all the different opinions and I think that one year is a balanced compromise.
Furthermore, I support a higher share of auctioning from the beginning than what the Commission has proposed.
My colleague Sunčana Glavak (EPP, Croatia), who is rapporteur for aviation ETS, is also proposing to advance full auctioning.
On the phasing out of free allowances, your approach is very different from that of the rapporteur for the ‘Carbon Border Adjustment Mechanism’ (CBAM), Mohammed Shahim, who wants to phase them out quicker than the Commission (see EUROPE 12862/3). At the end the two proposals need to be aligned. Can we say that this is a bad start?
Mohammed Chahim has made a proposal that is not at all compatible with what has been proposed by the Commission.
He also dramatically intervened in my competence because he wants to take away free allowances for cement industry from 2025 onwards even without the CBAM working.
I am very sure that his proposal will not fly but, on the other hand, we have a good personal relationship and we talk a lot. I think that when you have different starting points but a good personal relationship, it may work out. We also promised each other that, in the end, we will make proposals to the Parliament that are compatible.
Regarding the one-off reduction of a certain number of emission allowances, are you sticking to the Commission’s proposal?
Yes. I think that the Commission’s proposal is fully aligned with the Climate Law and the 55% objective (Editor’s note: EU net greenhouse gas emission reduction target by 2030). The Commission did a good job, so I do not challenge that.
Even if some are saying that the reduction foreseen by the Commission should be bigger because there are too many allowances on the market due to the impact of the Covid-19 pandemic?
If the economic growth catches up, which we all hope, then this impact will be diminished very soon.
My last question concerns the new ETS for buildings heating and road transport (ETS2). You want to introduce an opt-out clause for fuels for private road transport and residential building heating. This means that Member States would need to be able to differentiate the emissions from these activities from the ones coming from commercial operations. Is this really realistic?
Yes, it is very realistic, more than the Commission’s proposal, because I want the ETS2 to cover all fuels.
What many people do not realise is that the Commission’s proposal does include many economic activities and creates a lot of loopholes and a lot of bureaucratic burden.
For example, when a construction company brings a machine to the construction place with a lorry, they would have to participate in the ETS2 and pay for the fuel used by the lorry, but not for the machine that is on the construction site, even if it is polluting more. So this construction company needs to have different bills for the construction machine and for the lorry that brings the machine to the construction site.
There is a problem here with the Commission’s proposal when it comes to bureaucracy, differentiation, administration and fraud.
The idea of an opt-out clause is something that is being discussed within the French government and the Renew Europe group. I spoke to Pascal Canfin (Editor’s note: French MEP, member of Renew Europe and Chairman of the Parliament’s Committee on the Environment, Public Health and Food Safety) and he told me that it was possible to make the differentiation you are referring to. I admit that it is maybe a little bit complex, but my proposal as a whole is simpler than the one from the Commission.
Moreover, the opt-out clause would be temporary and voluntary. If Member States think it is too complex, they do not need to go for the opt-out.