Gathered in Brussels for a mini plenary session of the European Parliament, MEPs adopted by a large majority (439 votes in favour, 157 against and 32 abstentions) the report by Peter Liese (EPP, Germany) on the revision of the EU Emissions Trading System (ETS) on Wednesday 22 June, fourteen days after a first unsuccessful attempt.
On Wednesday 8 June, the voting session in the Parliament had resulted in the rejection of this flagship text of the legislative package aimed at putting the Union on a path to reduce its net greenhouse gas (GHG) emissions by at least 55% by 2030 compared to 1990 levels (‘Fit for 55’ package), due to divisions between the political groups on some major amendments (see EUROPE 12967/1, 12969/10).
This rejection led to the postponement of the voting session on the EU Carbon Border Adjustment Mechanism (CBAM) as well as the final vote on the ‘Social Climate Fund’ (see EUROPE 12977/11), two dossiers of the ‘Fit for 55’ package intrinsically linked to the ETS revision.
Two weeks of negotiations followed, after which the EPP, S&D and Renew Europe groups agreed on further compromises on problematic issues, including the phasing out of free emission allowances for sectors covered by the CBAM and the level of ambition of the ETS (see EUROPE 12972/11).
Finally, today’s (Wednesday) voting sessions allowed MEPs to adopt the new compromise on the abolition of free quotas and the introduction of the CBAM (see EUROPE 12977/12).
Level of ambition
The same applies to the compromise of a 63% ambition level for reducing GHG emissions in the sectors covered by the ETS by 2030 compared to 2005 emission levels. This is slightly higher than the Commission’s forecast (61%), but 4 percentage points lower than the position adopted by the Parliament’s Committee on the Environment (ENVI) (see EUROPE 12954/2).
This level of ambition is determined by the quantity of allowances in the system, which in turn depends on two variables: the one-off reduction of a certain number of allowances and the increase in the linear reduction factor (LRF - the percentage determining the quantity of allowances whose ceiling will decrease each year).
According to the agreed compromise, 70 million allowances will be phased out in 2024 (compared to around 117 million in the Commission's proposal) and 50 million in 2026. Instead of being increased to 4.2% (Commission proposal), the LRF factor will be increased to 4.4% from 2024 to the end of 2025, to 4.5% from 2026 and to 4.6% from 2029.
The Parliament also wants to introduce a bonus-malus system to encourage companies to reduce their GHG emissions. This tool consists of rewarding good performers in the sectors covered by the ETS by granting them additional free allowances and penalising bad performers by reducing their free allowances (see EUROPE 12951/9).
Inclusion of the maritime and waste sector
Another major proposal adopted was the inclusion in the ETS of emissions from ships of 5,000 gross tonnes or more.
The approach adopted by the Parliament is more ambitious than that proposed by the Commission, both in terms of timing and scope.
MEPs want to cover 100% of emissions from intra-European journeys from 2024 and 50% of emissions from extra-European journeys to and from the EU from 2024 until the end of 2026.
From 2027, emissions from all journeys should be covered at 100% with possible derogations for non-EU countries where coverage could be reduced to 50% under certain conditions. In addition, the system will be extended to ships of 400 gross tonnes or more.
The Parliament also wants to see GHG emissions other than CO2 included, such as methane and nitrogen oxides. The Commission would thus be required to adopt, by 1 July 2023 at the latest, delegated acts specifying the methods for reporting non-CO2 GHG emissions.
However, the adopted text provides for two derogations. Until 31 December 2029, shipping companies will be able to surrender 55% fewer quotas for voyages between a port located in an outermost region of a Member State and a port located in the same Member State outside that outermost region, including between two different ports located in different outermost regions of the same Member State.
They will also have the possibility to surrender less quota for their “ice class” ships and/or ice-going vessels.
Regarding the use of the revenues generated by the extension of the ETS to the maritime sector, 75% of the revenues shall be paid into an ‘Ocean Fund’ to support the decarbonisation of this sector. 15% of this fund should be used for biodiversity.
In addition, MEPs call for municipal waste incineration to be included in the ETS from 2026.
This further extension of the ETS should however be preceded by a Commission impact assessment, to be carried out by 31 December 2024 at the latest, in order to “avoid the diversion of waste from municipal waste incineration plants to landfills, which generate methane emissions, and the export of waste to third countries”.
Measures in case of excessive price increases
The Parliament also calls for the strengthening of the mechanism to combat excessive allowance price increases (Article 29a).
If, over a period of more than six consecutive months, the average price of allowances is more than twice (as opposed to three times in the current text) the average price of allowances in the previous 2 years, the Commission would be required to convene, within 7 days, the committee responsible for assessing whether this price development corresponds to a change in market fundamentals.
Depending on this assessment, the Commission would be obliged (and no longer have the option) to adopt one of the emergency measures provided for in the text. In addition to the existing measures, the Parliament added the withdrawal of 100 million allowances from the Market Stability Reserve (MSR).
ETS2
On the creation of a second ETS covering emissions from heating of buildings and road transport (ETS2 or ETS BRT), the text adopted in plenary is similar to what was agreed in the ENVI Committee.
MEPs therefore want ETS2 to apply initially only to commercial buildings and commercial road transport activities, starting in 2025.
The system could then possibly be extended to private activities related to these sectors (i.e. households), from 2029 onwards, depending on the results of a prior impact assessment by the Commission (see EUROPE 12954/2).
This analysis should include, inter alia, a detailed assessment of the evolution of fuel poverty and mobility in the EU and in each Member State and a detailed quantification of the additional emission reduction that could be achieved through this extension.
According to the Parliament’s position, a Member State could nevertheless decide not to wait to apply ETS2 to private activities, subject to prior approval by the Commission.
In addition, MEPs call for an extension of the scope of the ETS2 to all fuels, a maximum price of €50 per tonne of CO2 and an ‘emergency break’ for households in the event of its extension to them (see EUROPE 12950/9).
In order to help low-income families, the proceeds from the auctioning of 150 million allowances under the ETS2 will be made available to the Social Climate Fund. (Original version in French by Damien Genicot)