MEPs Jytte Guteland (Sweden) and Michael Bloss (Germany), shadow rapporteurs for the European Parliament’s S&D and Greens/EFA groups on the review of the EU Emissions Trading System (ETS), each proposed to reject the European Commission’s plan to establish a second ETS for building heating and road transport, on Wednesday 16 February, in their amendments to the draft report by Peter Liese (EPP, Germany), obtained by EUROPE.
The reason given by both MEPs is much the same: to ensure a fair transition by avoiding an additional cost to vulnerable households.
“The creation of a separate ETS for buildings and road transport is unlikely to deliver the necessary emission reductions in those sectors by 2030”, Mr Bloss further explains in his amendments.
In return, Ms Guteland wants to increase the ambition of the existing ETS in the industrial and maritime sectors.
The Greens/EFA are focusing on stronger regulatory measures by accelerating the phase-out of new petrol and diesel cars and vans, increasing the ambition of the ‘Renovation Wave’ initiative (see EUROPE 12581/10), while providing targeted support to people in fuel and transport poverty through the future ‘Social Climate Fund’.
The two shadow rapporteurs propose, among other things, to extend the scope of the ETS to installations with a thermal capacity of more than 10 MW, instead of 20 MW.
Maritime
Regarding the maritime sector, Ms Guteland and Mr Bloss suggest including it in the ETS earlier than planned.
While the Commission proposes 2026 and Peter Liese 2025 (see EUROPE 12867/3), they want 100% of the emissions from this sector to be covered starting in 2023.
The two MEPs also want to extend the proposed scope so that the ETS covers all greenhouse gas emissions from ships (not just CO2 emissions) with a gross tonnage of more than 400 t (compared to 5,000 t in the Commission proposal).
However, Ms Guteland introduces an additional criterion, namely generating more than 1,000 tonnes of greenhouse gas emissions per year.
In the original text (see EUROPE 12762/1), the Commission plans to cover only emissions from voyages within the European Economic Area (EEA), emissions at berth in a port under the jurisdiction of a Member State and 50% of emissions from all voyages (inbound and outbound) outside the EEA.
The two MEPs want to cover all extra-EEA travel.
Like Mr Liese, they both support the creation of an ‘Ocean Fund’. Funded by part of the new revenues generated by the inclusion of the maritime sector in the ETS, this fund would aim to support not only investments in innovative technologies and infrastructure to decarbonise maritime transport, but also the protection and restoration of marine ecosystems.
Free quotas
With regard to free emission allowances, Ms Guteland and Mr Bloss called for their abolition to be accelerated in relation to the rates proposed by both the Commission and Mr Liese.
Ms Guteland takes up the proposal of her socialist colleague Mohammed Chahim (Netherlands), rapporteur for the future EU Carbon Border Adjustment Mechanism (CBAM), namely to keep 90% of allowances free in 2025, 70% in 2026, 40% in 2027, and 0% in 2028.
She also states that free allowances should be conditional on the implementation of measures to improve energy efficiency or reduce emissions.
Mr Bloss, on the other hand, suggests that the free allocation of allowances should be stopped as soon as the review enters into force, except for those sectors covered by the CBAM for which free allowances could be granted until the end of the CBAM’s transitional period (which is supposed to allow producers, importers and traders to adapt to the new regime). In this case, the free allocation would be conditional on the adoption of a detailed decarbonisation and zero pollution plan at the level of each installation.
As for the use of the funds, the Green MEP wants 75% of the revenue generated by the phasing out of free allowances to go to the ‘Innovation Fund’. The remaining 25% should be used to increase Member States’ contributions to international climate finance.
Accelerating the reduction of the cap
Always with a perspective of increasing the ambition of the ETS system, both MEPs propose as well to increase the linear reduction factor (percentage determining the amount of allowances whose cap will decrease each year) to 4.6% (Ms Guteland) and 5.2% (Mr Bloss), compared to 4.2% in the Commission’s proposal.
Mr Bloss also wants to set a one-off reduction in the total number of allowances in the ETS at 450 million allowances and introduce a carbon price floor of €60 per tonne of CO2 equivalent.
This carbon price floor would increase each year by twice the linear reduction factor.
Waste sector
While both MEPs support Mr Liese’s idea to extend the ETS to emissions from municipal waste incineration, they want this to happen before 2028. This would be from 2024 for Ms Guteland and from the entry into force of the revision for Mr Bloss.
“At the same time, the Commission should put in place the necessary legislation to avoid and address the risk of diversion of waste streams to landfills and exports of waste to third countries”, the Socialist MEP also stresses.
Link to respect for the Rule of Law
Another novelty proposed by both Ms Guteland and Mr Bloss is the application of the EU ‘Rule of Law conditionality’ Regulation (2020/2092) to the ‘Modernisation Fund’ and the ‘Innovation Fund’, both of which are financed by part of the revenues from the auctioning of allowances.
This regulation allows the Council of the EU, on a proposal from the Commission, to adopt by a qualified majority of Member States measures to protect the EU budget or to suspend the approval of programmes chargeable to that budget in the event of damage (or a serious risk of damage) to the sound financial management of the Union as a result of conduct attributable to an authority of a Member State (see EUROPE 12892/1).
The two MEPs also propose to exclude the nuclear sector (and not just fossil fuels) from the scope of the funds.
According to them, 100% of the ‘Modernisation Fund’ (as opposed to “at least 80%” in the Commission’s proposal) should be used to support priority investments. Defined in the European Directive (2003/87) establishing the ETS, these investments include the production and use of energy from renewable sources, energy efficiency and energy storage.
Mr Bloss also calls for Member States to be required to submit a plan by mid-2023 detailing how they intend to use ETS revenues to meet their national energy and climate targets for 2030.
Operators, in turn, should draw up a decarbonisation plan for their installations falling within the scope of the ETS.
See Ms Guteland’s amendments: https://aeur.eu/f/dy
See Mr Bloss’ amendments: https://aeur.eu/f/dz (Original version in French by Damien Genicot)