On Monday 25 April, the French Presidency of the Council of the European Union sent Member States a first draft compromise on the revision of the EU Emissions Trading System (ETS).
Although the text includes several changes compared to the initial proposal formulated by the European Commission (see EUROPE 12762/1), Paris has chosen not to deal with some of the divisive points in this dossier at this stage.
For example, the draft compromise does not cover the chapters on the inclusion of the maritime sector in the ETS or the creation of a second carbon market for greenhouse gas emissions from space heating and road transport (ETS2).
However, it specifies how many additional allowances should be allocated to shipping in the year following the entry into force of the revision. While the European Commission proposes 79 million allowances, Paris wants to keep this number if the revision comes into force in 2023, but lower it to 75 million if it comes into force in 2024.
The French document also amends some parts of the European Commission’s proposal relating to the scope of the ETS and to the ‘Innovation Fund’ and the ‘Modernisation Fund’, two instruments that are fed by auctioning a certain amount of emission allowances.
Scope of application
On the first point, the Presidency would like to review the paragraph on the treatment of installations covered by the ETS which, by changing their production processes, fall below the 20 MW threshold (thermal capacity above which an installation is covered by the ETS).
While the European Commission suggests that such installations should remain within the scope of the ETS until the end of the current five-year cycle, the draft compromise foresees that the Member State should offer the operator the possibility to remain within the scope of the ETS until the end of the five-year period, after the modification of its production process.
The aim is to “incentivise the uptake of low-carbon technologies”.
Innovation Fund
Concerning the ‘Innovation Fund’, Paris proposes to include a provision that the European Commission should give “special attention to projects allowing to directly or indirectly decarbonise the maritime sector” when selecting projects to be supported by the fund.
The French document also adds that the ‘Innovation Fund’ “may support projects through competitive tendering, such as ‘Carbon Contracts for Difference’”.
In order to improve the role of Member States in the governance of the ‘Innovation Fund’ and to increase transparency, Paris suggests that the European Commission should be obliged to provide the ‘Climate Change Committee’ (established by EU Regulation 525/2013) with a report on the implementation of the fund, providing an analysis of the projects awarded by sector and by Member State, by 31 December 2023 and annually thereafter.
A similar scheme is proposed for the ‘Modernisation Fund’. In order to increase transparency and better assess the impact of the fund, the ‘Investment Committee’ (a body responsible for reporting annually on the activities of the fund) should report annually to the European Commission and to the ‘Climate Change Committee’ on the experience gained in evaluating the investments, particularly in terms of emission reductions and the costs of these reductions.
Taking into account the conclusions of this committee, the European Commission would then be required to review the areas of projects supported by the ‘Modernisation Fund’ and the basis on which the Investment Committee makes its recommendations.
According to the draft compromise, the European Commission would also be obliged to provide Member States with detailed information on applications for funding from the ‘Innovation Fund’ for projects in their respective territories.
See the draft compromise: https://aeur.eu/f/1d5 (Original version in French by Damien Genicot)