In a voting session on the draft report by Peter Liese (EPP, Germany) on the revision of the EU Emissions Trading System (ETS), the European Parliament’s Committee on the Environment, Public Health and Food Safety (ENVI) adopted by a large majority (61 votes in favour, 22 against and 5 abstentions), on Tuesday 17 May, a compromise amendment to delay the introduction of a new European carbon market covering emissions from heating of buildings and road transport (ETS2).
MEPs want the ETS2 to apply initially only to commercial buildings and commercial road transport activities starting in 2025, whereas the European Commission’s initial proposal envisages applying it also to private activities related to these sectors (i.e. households) from 2026 (see EUROPE 12762/1).
The Commission would then be tasked with analysing, in 2026, the possibility of extending the ETS2 to households, providing a detailed assessment of the evolution of fuel poverty and mobility in the Union and in each Member State.
On the basis of this analysis, the institution could then propose to the co-legislators a new legislative initiative to cover households from 2029.
This approach of separating commercial and private activities does not satisfy the Parliament’s rapporteur. A supporter of the ETS2, Mr Liese expressed his “bitterness” after the vote: “I would have liked to see a different solution here and fought against such a separation until the end. However, this was unfortunately not possible due to the opposition of the Social Democrats and the Greens, as well as many Renew MEPs, and right-wing parties”.
MEPs also want to extend the scope of the ETS2 to all fuels, set a maximum price of €50 per tonne of CO2 in the new carbon market and provide for an ‘emergency break’ for households in the event of its extension to them (for more details see EUROPE 12950/9).
Introduction of new sectors in the ETS1
MEPs also adopted a series of compromise amendments to the current ETS (ETS1).
In particular, they are asking to: - extend its scope to emissions from the maritime sector (from 2024) and the municipal waste sector (from 2026); - establish a bonus-malus system linked to the free allowances granted to companies covered by the ETS; - strengthen the current system in the event of excessive carbon price increases; - transform the ‘Innovation Fund’ into an ‘Investment Climate Fund’; - strengthen the ‘Modernisation Fund’; - create an ‘Ocean Fund’ (for more details see EUROPE 12950/9, 12951/9).
Further amendments expected before the plenary vote
While the amended draft report was adopted by a large majority (62 votes in favour, 20 against and 5 abstentions) a few hours after the votes on the amendments, two compromise amendments were only approved by a very narrow majority.
These are the one on the abolition of free emission allowances for sectors covered by the future ‘Carbon Border Adjustment Mechanism’ (CBAM) (45 votes in favour, 41 against and 2 abstentions) and the one on increasing the level of ambition of the ETS1 (46 in favour, 41 against and one abstention).
On these two points, the ENVI Committee finally retained the approach defended by the Greens/EFA, S&D, The Left and some of the members of Renew Europe, to the great displeasure of Mr Liese.
Regarding free allowances for sectors covered by the CBAM, MEPs want to abolish them completely by 2031, 6 years earlier than the Commission’s original proposal (see EUROPE 12762/5).
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 EPP and ECR groups wanted to reduce these free allowances by 10% between 2028 and 2030, and then by 17.5% each year to reach 0% by the end of 2034.
However, nothing changes for the free allowances granted to sectors not covered by the CBAM. The ENVI Committee rejected (18 votes in favour and 70 against) a compromise amendment supported by the Greens/EFA and The Left which would have auctioned these allowances at the following rate: 65% in 2026, 70% in 2027, 80% in 2028, 90% in 2029 and 100% starting in 2030.
On the second point, the MEPs propose a larger one-off reduction in the number of surplus allowances than that proposed by the Commission. The EU-wide quantity of allowances should thus be equal to the average of the period covering the 3 years preceding the year of entry into force of the revised rules.
This is estimated to be equivalent to removing around 205 million surplus allowances, compared to 117 million in the Commission’s text.
While the MEPs take up the Commission’s proposal to increase the linear reduction factor (LRF - the percentage by which the ceiling is reduced each year) to 4.2% (from the current 2.2%), they also want to increase it automatically by 0.1% per year.
These increases in the spot reduction and LRF would reduce emissions from the sectors currently covered by the ETS1 by 67% by 2030 compared to 2005 levels, 6% more than the Commission and Mr Liese want (see EUROPE 12942/4).
The latter has already announced, therefore, that it will table new amendments to modify the text on these two points during the vote in the Parliament’s plenary session (6 to 9 June).
He also expressed confidence that he could gather wider support, especially from Renew Europe MEPs: “I am sure that other majorities will emerge in plenary. The Liberals in particular do not feel comfortable in the company of The Left, the Greens and the Social Democrats, that the group has chosen in the Environment Committee”. (Original version in French by Damien Genicot)