The French Presidency of the Council of the European Union sent a note to the EU Member States on Friday 29 April, presenting new options for: - a new EU Emissions Trading System for buildings and road transport (ETS2 or ETS BRT); - the creation of a ‘Social Climate Fund’ (SCF) to offset the costs of the ETS2 for the most vulnerable households.
The note focuses on the timetable for the implementation of the ETS2 and the architecture of the SCF.
On the first point, Paris offers three options: (1) keep the Commission’s original proposal (operation from 2025 and issuance of emission allowances from 2026); (2) postpone the date of issuance of allowances to either 2027 or 2028; (3) phase in the surrender obligations in line with the approach taken by the Commission for the integration of the maritime sector into the current ETS (ETS1).
Under this approach, between 2023 and 2025, shipping companies covered by the ETS will only have to surrender allowances for part of their emissions (20% in 2023, 45% in 2024 and 70% in 2025), with a view to reaching 100% from 2026.
Applying a similar approach for the ETS2 would therefore require entities regulated by this new carbon market to surrender allowances according to the same schedule between 2026 and 2029: 20% in 2026, 45% in 2027, 70% in 2028 and 100% from 2029.
The Presidency considers that the option of a one-year postponement, i.e. until 2027, “would have the smallest impact” on the contribution of the ETS BRT to achieving the EU’s 2030 climate target (a reduction in the Union’s net greenhouse gas emissions of at least 55%) compared to a postponement until 2028.
Delaying the introduction of the ETS by 2 years compared to the Commission’s proposal would, on the other hand, “align the introduction of the ETS BRT and the Social Climate Fund with the next multiannual financial framework 2028-2034”, the note points out.
With regard to the SCF, the French Presidency considers that two options should be examined in addition to the initial option proposed by the Commission, consisting of creating a new fund within the multiannual financial framework (MFF), financed through the creation of new own resources (see EUROPE 12762/6).
The first is to include this new fund in the EU budget, on a line fed by revenue from the ETS2.
The second would be to place the Social Climate Fund outside the EU budget. The fund would be financed by the sale of ETS2 allowances and its governance arrangements would be defined.
In both options, the Social Climate Fund would become an internal fund of the Emissions Trading System, thus avoiding the reopening of the Multiannual Financial Framework.
The French Presidency’s note will be discussed by the Member States’ ambassadors to the EU (Coreper) on Wednesday 4 May.
See the Presidency note (in French): https://aeur.eu/f/1h4 (Original version in French by Damien Genicot)