While the latest meetings (four in one week) of European Parliament negotiators on the revision of the EU Emissions Trading System (ETS) have allowed them to reach compromises on a number of issues, the different political groups in the European Parliament remain divided on the most politically sensitive issues of the dossier, namely the elimination of free allowances, the reduction of the number of allowances in the scheme and the creation of a new ETS covering emissions from heating of buildings and road transport (ETS2), said the shadow rapporteur for the Greens/EFA group, Michael Bloss (Germany), on Friday 6 May in an exchange with EUROPE and other media.
End of free allowances
According to Mr Bloss, negotiators from the Greens/EFA, S&D, Renew Europe and The Left groups are said to want to push for a compromise to eliminate all free emission allowances for sectors covered by the future ‘Carbon Border Adjustment Mechanism’ (CBAM) by 2030, six years earlier than the Commission’s original proposal (see EUROPE 12762/5).
The rate at which free allowances will be phased out has yet to be defined, but is likely to be closer to the Renew Europe proposal, a parliamentary source told us. This approach foresees maintaining 90% of the free allowances for these sectors in 2025, 80% in 2026, 70% in 2027, 50% in 2028, 25% in 2029 and 0% in 2030 (see EUROPE 12895/11).
The Parliament’s rapporteur on this dossier, Peter Liese (Germany), is said to oppose any date before 2033 for the end of free allowances for the sectors covered by the CBAM.
Given the lack of progress on this issue, Mr Bloss anticipates that alternative compromise amendments will probably be tabled.
Reduction in the number of quotas
Negotiations are also stalling on the one-off reduction in the number of allowances in circulation and the intensity of the increase in the linear reduction factor (LRF - the percentage by which the cap is reduced each year).
In its proposal, the Commission foresees a one-off reduction of 117 million allowances and an increase in the LRF to 4.2% (from the current 2.2%).
The EPP is said to have suggested setting the LRF at 4.7%, with the possibility of gradually increasing it, as proposed by Renew Europe (see EUROPE 12937/8), and removing 70 million allowances. The S&D, Renew Europe and Greens/EFA groups reportedly have considered this one-off reduction to be too small (Greens/EFA want 450 million allowances removed - see EUROPE 12893/18).
ETS2
While Mr Bloss does not reject the possibility that ETS2 will be scrapped, given the divisions among MEPs in the EPP, S&D, Renew Europe and Greens/EFA groups, he said he hopes that a compromise can be reached next Tuesday (10 May), when negotiators meet for the last time.
According to him, this compromise will probably contain provisions quite similar to the latest proposals by Mr Liese (see EUROPE 12942/4).
Maritime
However, discussions have progressed well on other issues, notably the inclusion of the maritime and waste sectors in the current ETS (ETS1).
While the Commission proposed to cover emissions from ships with a gross tonnage of more than 5,000 t on a progressive basis to reach 100% by 2026, negotiators reportedly agreed to bring this date forward to 2024 and to extend the scope to ships with a gross tonnage of more than 400 t from 2027.
They are also said to have agreed to cover, from 2027, 100% of international travel, i.e. travel ending in the European Economic Area (EEA) and travel leaving the EEA.
The compromise would also provide for exceptions for the outermost regions and for vessels sailing in the icy waters of the Arctic Ocean (which consume more fuel).
It would also include the idea of an ‘Oceans Fund’, specifying that 15% of this fund must be used for biodiversity.
On municipal waste, negotiators reportedly reached a compromise to include this sector in the ETS1 starting in 2026.
Strengthening the ‘Innovation Fund’
Negotiators reportedly also agreed to strengthen the ‘Innovation Fund’ and redefine its scope.
This will be renamed the Climate Investment Fund and will no longer be used to finance only innovations, but also existing decarbonisation technologies that need financial support to develop.
Article 29a
In terms of the mechanisms to be activated in the event of an excessive increase in ETS prices (Article 29a), the negotiators want the ‘Climate Change Committee’ to verify the need to release a certain quantity of allowances from the market stability reserve. This would not be automatic, contrary to what Mr Liese proposed (see EUROPE 12892/21).
Votes on the dossier in the Parliament’s Committee on the Environment, Public Health and Food Safety (ENVI) are scheduled for 16 and 17 May. (Original version in French by Damien Genicot)