Europe Daily Bulletin No. 12963

2 June 2022
Final straightaway in European Parliament before a series of votes on ‘Fit for 55’ package
Brussels, 01/06/2022 (Agence Europe)

MEPs had until 1pm on Wednesday 1 June to table their amendments to the eight legislative proposals of the ‘Fit for 55 package’, which will be put to a vote of the full European Parliament next week (Tuesday and/or Wednesday) at the plenary session in Strasbourg.

This concerns: - the revision of the EU Emissions Trading System (ETS); - the establishment of an EU ‘Carbon Border Adjustment Mechanism’ (CBAM); - the creation of a ‘Social Climate Fund’ (SCF); - the revision of the ETS for aviation; - the revision of CO2 emission standards for new cars and vans; - the revision of the effort sharing regulation (ESR); - the revision of the Land Use, Land Use Change and Forestry Regulation (LULUCF); - the inclusion of the ‘Carbon Offset and Reduction Scheme for International Aviation’ (CORSIA).

According to information gathered by EUROPE and announcements made at press conferences throughout Wednesday, the votes on the ETS review, CBAM and CO2 emission standards for new cars and vans could lead to significant changes to the texts adopted by the Parliament’s Committee on the Environment, Public Health and Food Safety (ENVI).

Battle over the number of allowances in the ETS

The political groups are notably divided on the extent of the one-off reduction in the number of emission allowances in circulation in the current ETS, as well as on the increase in the linear reduction factor (LRF - the percentage by which the ceiling is reduced each year).

These factors determine the level of ambition of the ETS in terms of emission reductions from the sectors covered by this carbon market.

At a press conference, ENVI Committee chair Pascal Canfin (Renew Europe, France) explained that his group and the EPP had agreed on an amendment to proceed in two stages with regard to the one-off reduction in the number of allowances.

Both groups want to reduce the number of allowances in circulation by 80 million the year after the amendment comes into force (compared to around 117 million in the European Commission’s proposal) and then by 40 million in 2026, said Mohammed Chahim (S&D, Netherlands), Parliament’s rapporteur for the CBAM, while stressing that his group does not support the amendment.

During the ENVI Committee’s voting session, MEPs supported by a narrow majority (46 in favour, 41 against and one abstention) a compromise amendment tabled by the Renew Europe, S&D, Greens/EFA and The Left groups to remove around 205 million allowances (see EUROPE 12954/2).

According to Peter Liese (EPP, Germany), Parliament’s rapporteur on the ETS review, the amendment agreed with Renew Europe would lead to a 63% reduction in emissions from the sectors currently covered by the ETS by 2030 compared to 2005 levels, which is 2 percentage points higher than the European Commission’s forecast, but 4 percentage points lower than the position agreed in the ENVI Committee.

For the Greens/EFA, this level of ambition would be insufficient to limit global warming to 1.5 degrees.

Mr Canfin and Mr Liese justified their approach on the grounds that very high energy prices are already a burden on industry and that there is therefore no need, in the short term, to add to this an increase in the carbon price.

If a large number of allowances are taken out of the market, life will be much more expensive, and would make industry and citizens who use electricity suffer a shock at the wrong time”, said Mr Liese.

He therefore wants a “more even distribution of the effort” to “give industry breathing space in these difficult times”.

On the LRF, Renew Europe and the EPP would like to raise it to 4.4% from 2024 until the end of 2025 and to set it at 4.5% from 2026. The compromise amendment adopted in the ENVI Committee was to raise it to 4.2% (from the current 2.2%) and then automatically increase it by 0.1% per year.

New compensation to accompany CBAM

The battle between the political groups also concerns the end of free allowances, which must be linked to the entry into force of the CBAM. While Mohammed Chahim had obtained a majority to abolish free allocation of allowances by the end of 2030 for sectors covered by the carbon border adjustment mechanism (see EUROPE 12954/6), he reversed his position.

Together with the Renew Europe group, he tabled an amendment postponing the complete phase-out of free allowances: the reduction will have to start in 2026 (and not in 2025) and end in 2032. The S&D hopes to gain the support of some EPP members.

For the time being, Peter Liese believes that he cannot support this compromise. In his view, it is important to gauge the degree of acceptance of CBAM by third countries and its effectiveness first, before rushing the end of free allowances. “To be honest, I’m optimistic that after the trilogues we’ll be able to support the text, because the Council will be more realistic”, he added.

The Greens/EFA group regrets the U-turn by Renew Europe and the Social Democrats (S&D) after a compromise was adopted. In their view, free allowances should be completely phased out no later than the end of 2030.

Renew Europe and the Social Democrats also agreed on a second amendment to support European exporting companies, which could be negatively affected by CBAM. Those in the top 10% in terms of emissions will be eligible for free allowances for their exports of products covered by the CBAM regulation.

Until now, the rapporteur, Mohammed Chahim, had not included an export rebate measure, which he considered difficult to justify before the World Trade Organization (WTO). “We think this is something we could offer, which allows us to push the money specifically to the green parts of exports”, he said of the latest compromise.

These two amendments respond in part to the demands made by the European industry. Fifty-four iron industry executives sent a letter to MEPs a few days ago denouncing a premature transition to CBAM, which they say will damage the European iron industry.

The European producers’ alliance AEGIS Europe agrees and adds that the lack of export support for European companies creates an unprecedented risk for employment, investment, and the objectives of the ‘European Green Deal’.

Car emission standards, a step backwards in ambition?

For MEP Bas Eickhout (Greens/EFA, Netherlands), the dossier on which it will be most difficult for the Parliament to maintain a level of ambition at least equal to that of the European Commission’s proposal is the revision of CO2 standards for new cars and vans.

The political groups are particularly divided on the date for ending the sale of new cars and vans with internal combustion engines, as demonstrated by the voting session in the ENVI Committee (see EUROPE 12950/10).

At the meeting, MEPs narrowly rejected (43 votes in favour, 44 against) a compromise amendment tabled by the EPP and ECR groups that would have set a 0 % CO2 emission target for 90% of new vehicles registered in 2035, compared to 100% in the European Commission’s proposal (see EUROPE 12762/3).

Asked about the EPP’s choice to give the car industry the freedom to sell 10% of new cars and vans that emit CO2 after 2035, Mr Liese explained that his group supported a technology-neutral approach.   

We think it should not be the politicians to say how to decarbonise (...) We want to keep the way open for other technologies”, he added, citing synthetic fuels. (Original version in French by Damien Genicot and Léa Marchal)


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