In their sixth session of inter-institutional negotiation (‘trilogues’) on Friday 16 and Saturday 17 December, negotiators from the European Parliament and the Council of the European Union will meet with the aim of reaching an agreement on the revision of the EU Emissions Trading System (ETS). This is a difficult - not to mention mammoth - task, as so many political issues are still open.
As a series of preparatory documents from the Czech Presidency of the EU Council obtained by EUROPE indicate, the proposal to establish a second - separate - ETS for emissions from building heating and road transport (ETS2 or BRT ETS) “remains the most problematic issue in the negotiations”.
While Member States have adopted a position very close to the European Commission’s initial proposal (see EUROPE 12982/6), MEPs, concerned about the consequences of such a system on the most vulnerable households in the midst of the energy crisis, are defending a two-step approach (see EUROPE 12977/10).
From 2025 onwards, ETS2 would only apply to commercial buildings and commercial road transport activities. 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).
However, for the Czech Presidency, “any division between commercial and private actors” remains “unworkable”.
Towards a significant strengthening of the Social Climate Fund?
The subject of ETS2 is directly linked to the legislative proposal to create a social climate fund (SCF) to mitigate the socio-economic impact of this new carbon market, especially for the most vulnerable households.
According to the Greens/EFA shadow rapporteur Michael Bloss (German), the trilogue is expected to start at around 11:30 am with several hours of negotiations on the ETS, before continuing at around 4:00 pm with 3 hours of discussions on the SCF. The ETS will then come back to the table at the end of the day and in the evening.
Saturday’s programme will depend on the progress of the negotiations. If the parties agree to set a 10:00 pm deadline, the trilogue could go on into the night. However, there are no plans for negotiations to take place on Sunday during the day, according to the Parliament rapporteur Peter Liese (EPP, German).
In his view, the European Parliament could show flexibility on ETS2, notably on its amendment to set a maximum price of €50 per tonne of CO2, provided that the SCF is significantly strengthened. A source told EUROPE that rather than having a ceiling as such, one option would be to direct all revenues from the auctioning of ETS2 emission allowances to the fund when the price per tonne of CO2 exceeds a certain level.
MEPs also want the fund to be in place well before ETS2 starts to apply.
As for their proposal to provide an ‘emergency break’ from the ETS2 for households in the event of high energy prices (similar to the current situation), a document obtained by EUROPE indicates that the European Commission would be open to the idea, subject to adjustments.
The European Parliament also insists on its amendment that fossil fuel companies covered by ETS2 could not pass on more than 50% of the costs of surrendering allowances to the final consumer.
Free quotas and CBAM
In addition to ETS2, the co-legislators will have to deal with the thorny issue of abolishing free emission allowances.
This is directly linked to the legislative proposal to establish an ‘EU Carbon Border Adjustment Mechanism’ (CBAM), as its implementation is to follow the same pace as the abolition of free allowances.
Negotiators on this issue will try to reach an agreement on Monday 12 December. However, it is likely that they will temporarily freeze the issue of free allowances, leaving it to the parties responsible for the ETS review.
Use of revenues
On Tuesday 13 December, negotiators for the ETS review will also be paying close attention to the trilogue on the financing of the REPowerEU plan, the outcome of which will influence the use of ETS revenues.
As rapporteur, Mr Liese will participate in this trilogue to help defend the European Parliament’s position (see EUROPE 13035/23).
Mr Bloss, for his part, said he was ready to block the negotiations on these two texts (CBAM and REPowerEU) if they worsen the European Parliament’s position on ETS.
See the Czech Presidency document: https://aeur.eu/f/4lx
See the EU Commission document: https://aeur.eu/f/4lw (Original version in French by Damien Genicot)