In its new draft compromise on the revision of the EU Emissions Trading System (ETS), the French Presidency of the Council of the European Union proposed to Member States on Wednesday 8 June to postpone by one year the entry into force of the new carbon market designed to cover emissions from heating of buildings and road transport (ETS2), as well as the inclusion of emissions from the maritime sector in the current ETS.
Auctioning of ETS2 emission allowances would therefore only start in 2027 instead of 2026, the start date in the European Commission’s original text presented on 14 July 2021 (see EUROPE 12762/1).
This text also provides for the gradual extension of the ETS to emissions from ships with a gross tonnage of more than 5,000 tonnes at the following rate: 20% of emissions in 2023, 45% in 2024, 70% in 2025, 100% from 2026.
While the Presidency retains these percentages, its draft compromise provides for the postponement of this timetable by one year. The inclusion of emissions from the maritime sector in the ETS would thus only start in 2025, reaching 100% in 2027.
Ensuring compliance with the ‘polluter pays’ principle
Paris also introduces a new feature to better ensure compliance with the polluter pays principle in the maritime sector.
When transposing the new rules into national law, Member States should provide for the possibility for a shipping company subject to the ETS to claim reimbursement of the costs resulting from the surrender of emission allowances from the entity that is directly responsible for decisions affecting the ship’s CO2 emissions.
The Presidency justifies this addition on the grounds that a ship’s emissions “depend inter alia on the vessel energy efficiency measures taken by the ship-owner and the fuel, the cargo carried, the route and the speed of the ship which may be under the control of a different entity than the ship-owner”.
In order to reduce administrative costs, however, Member States would not be obliged to ensure or monitor the existence of contractual arrangements for such reimbursement. However, they would be required to provide a legal right to reimbursement for the shipping company and corresponding access to justice to enforce this right.
Price mitigation measures
The draft compromise also amends the chapter on measures in the event of excessive allowance price increases in the ETS2.
In this chapter, the Commission provides for the release of 50 million allowances from the Market Stability Reserve (MSR) if, for more than three consecutive months, the average allowance price is more than twice the average price during the previous six consecutive months.
The French Presidency suggests that these conditions be relaxed for 2027 and 2028.
For these years, allowances would be released when, for more than three consecutive months, the average quota price is more than 1.5 times the average price during the previous six consecutive months.
See the draft compromise: https://aeur.eu/f/21j (Original version in French by Damien Genicot)